Here's a new challenge: this is a gift, but

[schirallicpa]

The client's mother sold timber. Was going to be getting about $50000 for all of it. She was selling the timber with the intent to give the money to the 5 children.

But she was afraid she'd have to pay tax so she had timber company write checks and give 1099 directly to 5 children.

So my client has a 1099 for $10000.

Anyway around this one?

[RitaB]

I think in essence Mom gave your client $10,000 in timber, and your client sold it. I mean, no, that's not exactly what happened, but she just needs to pay up and be happy, in my opinion. Alternative is to look a gift horse (mom) in the mouth, and put it back on mom. Not cool.

[Jack from Ohio]

Send me the money, give me a 1099 and I will smile all the way to the bank. Some people are so Da_ned selfish!!

[kcjenkins]

She gifted them the timber, so their basis is determined by the gift rules. Let your client pay the resulting tax and be happy that their mom was so generous.

[Gail in Virginia]

But because the timber would have been a capital asset in the mother's hands, as long as she had held it for over one year before gifting it, they should be able to use LTCG treatment for the sale. And I agree with Jack; if they don't want to pay the taxes, gift it to me. I will pay my share!

[DANRVAN]

It would be interesting to know how mom's tax preparer is going to handle the "assigned income". You can't gift the income and retain the property that produced the income.

So unless mom transferred the land or deeded the timber cutting rights, the income is hers.

[kcjenkins]

She can gift the timber without gifting the land.

[DANRVAN]

Without looking it up, I can tell you that the assignment of income doctrine places the tax burden on the owner of the property that produced the income. The land is the property and the timber is the income. That is no different than a farmer trying to gift crops to his children.

The standing timber could have been gifted by a deeded cutting right but that was not the case here.

Another factor is control and mom held it. She decided when and how the timber would be cut and to who and for how much it would be sold for. Then she had buyer pay the kids for the proceeds that she alone was entitled to (unless I missed something in the post). The only thing she transferred was the proceeds from the sale.

As I recall, there is a supreme court decision regarding assignment of income that said something like the fruit belongs to the tree which produced it.

Good night.