INCOME TAX UPDATES 

BY 

RICHARD M. COLOMBIK, JD., CPA 

RICHARD M. COLOMBIK & ASSOCIATES, P.C. 
 

TENANCY BY THE ENTIRETIES 

In E. J. McKernan Co. v. Gregory, 268 IL App.3d 383, 643 N.E. 2d 1370 (2d Dist. 1994).  Judgment was entered on February 4th, 1992, by plaintiff and against  defendant in the amount of $306,000.00.  The judgment was entered individually against defendant and not jointly against defendant and his wife.  On August 10th, 1992, a Certificate of Levy was served on the defendant notifying him that the sheriff intended to sell his house to satisfy the plaintiff?s judgment.  The defendant filed a motion to quash the levy and restrain  sale of his residence.   On May 13th, 1993, the Circuit Court denied the motion, and the defendant appealed such denial.

The defendant had conveyed his joint tenancy interest prior to seizure into tenancy by the entireties.  (The case did not state the exact date that the transfer occurred.)  Plaintiff argued that the DuPage County home transfer was a fraudulent conveyance because  defendant reconveyed title to his home to tenancy by the entirety with his wife with the intent to defraud plaintiff.  The allegation was that a fraudulent transfer was committed within the Uniform Fraudulent Transfer Act.  The specific section of the Transfer Act, §5(a)(1) regards a transfer by a debtor (1) with actual intent to hinder, delay or defraud any creditor of the debtor.  74 ILCS 160/5(a)(1).   

The court then interpreted 765 ILCS 1005/1(c) of the Tenancy by the Entireties Act which allowed the creation of the Tenancy by the Entireties from husband and wife.  Further, 735 ILCS 5/12-112 provides ?any real property held in Tenancy by the Entirety shall not be liable to be sold upon judgment entered on or after October 1st, 1990, against only one of the tenants.? The court construed the Transfer Act and the Tenancy by the Entirety Act statute not to contain conflicts. 

The court held that the Transfer Act forbid transfers made with the ?actual intent? to hinder, deny or defraud.  Whereas, the Tenancy by the Entirety statute does not require intent.  Therefore, it cannot be fraudulent to engage in conduct that is specifically and unambiguously sanctioned by statute.  ?There are no limitations or qualifications on the use of tenancy, other than the real property be held by a married couple during coveture and that the property by the couple?s ?homestead??.  Therefore, the Appellate Court reversed the DuPage County Court and remanded the case to decided in accordance with its instructions. (An appeal to the Supreme Court was withdrawn and the Appellate case stands.)

CHILD LIABLE FOR PARENT?S FAILURE TO FILE

The Second Circuit Court of Appeals in Skye Bassett v. Commissioner, 93-4271 (2d Cir.1995) affirmed the Tax Court decision holding their child was liable for additions to tax based upon her parents? failure to file the child?s tax return.

The petitioner, Skye Bassett, was a professional actress when she was less than fourteen years old.  She performed on Broadway and on television earning $106,734.00.  She received a Form W-2 which was sent to her home.  No tax returns, however, were filed on her behalf.  Ms. Bassett did not know that income was required to be reported on tax returns because of her youth, and she, personally, lacked the capacity to file such returns.

The Internal Revenue Service determined deficiencies against Bassett, plus penalties, for negligence and late filing.  Bassett argued she should not be liable for the penalties because her failure was due to reasonable cause.  The court noted that IRC §6012(a)(1)(A) provides that if an individual is unable to make a return, then such individual shall have a return made by a duly authorized agent ... guardian ... or other person.  Therefore, the divided Second Circuit Court upheld the Tax Court ruling and imposition of penalties.

BOSNIA - ?OPERATION JOINT ENDEAVOR?

An automatic extension of time to file 1995 Federal Income Tax Returns is granted for members of the U. S. Military serving in ?Operation Joint Endeavor?.  The Service will automatically provide an extension of time to file until December 15th, 1996, for those members serving in ?Operation Joint Endeavor? on or after Mary 1st, 1996.  This extension will ensure that any returns received by the extended due date from members serving in ?Operation Joint Endeavor? will not be assessed either the failure to file or the failure to pay penalties.