Tax treatment of property forfeited and sold -
10/27/09
at 11:27 AM
I have a client who was convicted of a felony and is currently serving time for his crime. Various properties of his were seized when he was originally arrested, but were later returned to him. He then forfeited these properties to be sold and the monies used to fund a victims fund. Will the sale of these forfeited properties be deemed a taxable sales to this taxpayer?
>>Will the sale of these forfeited properties be deemed a taxable sales to this taxpayer?<<
Might be worth some research. Probably depends on exactly how it was handled, whether he had constructive receipt of the sales proceeds. For example, was the forfeiture in the nature of restitution, or of a penalty? I wouldn't be very quick to self-assess capital gains tax--let the IRS do that if they want.
Suppose somebody else were on joint title or he had borrowed the property. The owner would realize no gain on the sale.
On the other hand, forfeiture suggests that the property was either derived from or used for illegal activities, and that doesn't generate much sympathy in our legal system. In any case, be sure to get your fee up front.
Come on, folks, this is an interesting question! And here we are in the off-season, so browse through your research materials to kick start your year-end review.
What if he DOES owe tax? He probably also owes tax for the drug sales or whatever it was that landed him in stir. I guess he isn't going to settle with the IRS for some time since all his assets were stripped away and his employment opportunities somewhat curtailed.
Can the IRS go after the transferees to enforce the automatic tax lien?
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