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Duly Noted

The Money’s Gone; The Tax Bill Isn’t. A New Jersey couple cannot reclaim more than $157,000 in state income taxes they paid in 2005 on proceeds from an initial public offering, even though they later forfeited the money. The state Tax Court noted that Joseph Murphy was never accused of wrongdoing in connection with the bankruptcy of his former employer, Refco Inc., which came just two months after the IPO when Refco revealed a massive accounting fraud. Nevertheless, Refco’s bankruptcy trustee and federal prosecutors each brought claims against Murphy and his wife. The couple forfeited $10 million in 2008 to settle the claims. They then sought a refund of their 2005 taxes. But the New Jersey Division of Taxation denied the refund, ruling that the $10 million in forfeitures had to be treated as losses occurring in 2008. The Tax Court agreed. Murphy v. Division of Taxation, Docket No. 005608-2011.

IRS Makes It Official: Medicare Is Health Insurance. Medicare Part B premiums are treated as health insurance premiums and can be deducted by partners, sole proprietors and S corporation shareholders, the Internal Revenue Service concluded in a legal memorandum. To be eligible for the deduction, sole proprietors must pay the Medicare premiums directly, while partners and S corporation shareholders who hold 2 percent or more of the corporation’s stock can either pay Medicare directly and be reimbursed by their companies, or can have their companies pay the premiums. In either case, partners and shareholders must include the premium payments in gross income and can then claim the offsetting deduction. Individuals who failed to claim the deduction in prior years for which the statute of limitations has not expired can file refund claims. 2012 TNT 136-26.

The Pot And The Kettle Go To War. Swiss banking giant UBS, which paid $780 million in fines to avoid prosecution for helping American clients evade federal income taxes, has sued one of its former clients for malicious prosecution. Igor Olenicoff, a wealthy California real estate developer, sued UBS for allegedly misleading him about his U.S. tax obligations on offshore accounts. But Olenicoff had already pleaded guilty to filing false tax returns, and his suit was dismissed in April by a federal judge who said Olenicoff could not retract his prior admissions in order to blame UBS for his actions. UBS followed by filing its own federal lawsuit in August, in which it asserted that Olenicoff knowingly brought false claims against the bank. 2012 TNT 158-2.

If you enjoyed this article, be sure to check out Palisades Hudson’s books, The High Achiever’s Guide To Wealth and Looking Ahead: Life, Family, Wealth and Business After 55. Both are available in paperback and as e-books.