The biggest lesson may be that contracts, invoices, and good record-keeping are just as important in a family or related party setting as they are anywhere else.
Sometimes the biggest mistakes are also the most mundane, and those can make for an awful headache for even the best of us. The maxim proves itself once again in the case of Anthony Olivo, and Forbes’s recent re-telling of that story, where even a tax lawyer neglected proper record keeping of his services to his loved ones – both care-giving and estate-planning services – and the IRS had little sympathy.
Anthony had been a tax lawyer for nearly two decades, even opening his own practice, until the needs of his aging parents grew too great. Anthony turned to become a full-time, live-in caregiver for his parents from 1994-2003, receiving negligible income from his practice and working long, hard hours just trying to support everything. He even become the estate-planning attorney for his parents’ estates and in this capacity brought the matter of deductions before the tax court in what became Estate of Olivo v. Commisioner. Anthony was hoping to deduct his services from his mother’s estate in three payments: $55,000 in accountant and attorney fees Anthony claimed, $44,200 in administrators commissions fees paid to him, and finally a whopping $1.24 million for care services over the 9 year period. The deductions were denied.
The tax court didn’t doubt that services had been rendered, and admirable ones at that, as far as care was concerned. After all, without his care it would have taken round-the-clock care from nurses to support his parents. Nevertheless, the court found that there simply weren’t enough records. The family had never formally established that Anthony’s care services were intended to be paid for as there was no agreement and no paperwork. There wasn’t even an estimate of the value of his services in the first place since he is not a professional care-giver. Of course, he is a professional tax lawyer but even those services were contested by the court. He didn’t keep records, invoices, or provide solid values there either aside from sparing notes and estimated hours. In fact, there was even some question as to whether Anthony could bill the estate at all for legal services, much less deduct them from the estate. It simply wasn’t enough on all counts.
The bottom line is that the minutia of documentation and burden formal arrangements are absolutely necessary. They are in business and they are even within the family, so far as the IRS is concerned.
Reference: Forbes (July 18, 2011) “Tax Lawyer Son’s Help, Priceless?”
Tags: documentation, elder care, elder law, Estate deduction, family care