Question

PROBLEM #1 Joe, a retired aeronautical engineer with NASA, lived in Houston, Texas. When Joe was diagnosed with terminal cancer, he realized that he would need assistance during his last months/years of his life. Joe asked his brother, Mark to move to Houston and live with/care for him. Joe promised Mark that Joe would leave Mark a specific bequest of $750,000 if Mark agreed to live with and care for Joe. Mark agreed to this plan and he moved to Texas and lived with and cared for Joe for the duration of Joe’s life. Unfortunately for Mark, Joe never amended his Last Will & Testament to reflect their agreement so Mark was left with nothing under the Will when Joe passed away. Mark filed a lawsuit against Joe’s estate after Joe’s death to enforce their agreement. Mark’s lawsuit was successful and he received $750,000 from Joe’s estate. Determine the tax consequences of the $750,000 payment for both Mark and Joe’s estate.

NOTE: Use only the Internal Revenue Code for your research. Include with your response to each question, a paragraph with an explanation of how you arrived at your solution (i.e. walk me through your research steps). Note: You may need more than one Code section for a complete answer.

Answer 1

The general rule is that Gross Iincome doesnot includes value of property acquired under bequest even if same was acquired filing a litigation (IRC 102a).Inheritances are tax free.

In the given case though prima facie it looks to fit into the above clause but there is a catch.te origin of the claim is the "services' by Mark to his brother Joe.Taking care is a service.mark relied on Joe's verbal promise to bequest $ 750000 if he too his care in last moments.Mark relied on this verbal promise is unfortunate.If Joe had simply given mark a specific bequest witout mention of the service it would have not been taxable and could have been treated as tax free inheritance.But in this case it was not so hence it will be taxable event for Mark (refer John Davies,1954)

Since it will be a taxable income in hands of Mark the Estate can treat same as business expense and claim deductions.