JANUARY 29, 1996 VOLUME 3, NUMBER 31
In 1984, Stanley McGill sent a $7,000 check for his 1983 tax liability to the government by the April 15 deadline. McGill was supposed to send in only $700; he was apparently confused and made out his check incorrectly. He never filed his tax return, and died in 1988.
McGill's daughter discovered the payment while taking care of her father's estate. She filed a return and requested a refund of overpaid taxes. Although the IRS agreed that McGill had money coming back, they pointed out that a taxpayer only has two years from payment of a tax (or three years from filing) to claim a refund. McGill had not made his claim on time.
The trial court agreed with the IRS, and the daughter appealed. The Court of Appeals, saying that "it would be unconscionable to allow the government to retain money that it ... may have only received due to a 93 year-old man's senility," ordered the District Court to conduct an inquiry into McGill's capacity at the time he made the payment.
Between 1972 and 1987, Mary Parsons was systematically exploited by her physician and a lawyer he hired. During that time, they arranged to make "gifts" to themselves worth millions of dollars. The gift taxes (paid from Parsons' estate) totaled over $11 million.
Parsons discovered the thefts and sued; she recovered the "gifts." Then she tried to recover the gifttaxes.
The IRS once again argued that it was too late to claim a refund, but this time they won. Since $7 million of the taxes had been paid within the last two years, Parsons did get that money refunded, but she still paid over $4 million in taxes because of the fraud.
Cases with such large overpayments are rare. Still, the principles apply to smaller tax issues as well.
U.S. Chief Justice Burger's Last Will
Late last year newspaper stories related a compelling tale about the need to involve an attorney in estate planning. It seems that the late Warren Burger, former Chief Justice of the United States Supreme Court, had written his own Will and had failed to take advantage of basic estate tax savings techniques. The notion that the top judge of the highest court in the land would make such a mistake seemed wonderfully ironic.
The only problem with story: it simply wasn't true. Justice Burger's estate plan was complete, and his Will was just fine. Suggestions that he cost his estate almost a half million dollars by failing to consult an estate planning lawyer were wrong, and the real problem was that the lawyer who made the claim had incomplete information.
Does the Burger Will show that others can do the same thing? It is worth remembering that Chief Justice Burger was an accomplished attorney and an intelligent jurist. He also could claim friendship with of the most prominent attorneys in the country. His $1.8 million estate was more complicated than most, but he had access to good information.
There is one thing Chief Justice Burger might have done differently if he had consulted an estate planning specialist. Most would have suggested that he create a living trust precisely to avoid the probate process and public scrutiny of his Will and estate.