Court Rules Against IRS in Parent's Payment of Daughter's Debts


In a ruling against the Internal Revenue Service, a court recently found that an anxious parent's payment of a child's debts were a gift instead of taxable income.

The case involved a mother who was apparently worried that her daughter was financially irresponsible. Her daughter had liabilities that the mother wanted to be paid, but the mother did not want to give cash to her daughter. So the mother paid the liabilities directly to the claimants.

The Internal Revenue Service determined that the daughter had income from her mother's payments of her liabilities. But the court held that the mother's payments were gifts to the daughter and, hence, not taxable income.

The court's holding is fact-sensitive. If you are interested in taking advantage of the case, we suggest that you call one of the people in our tax department. We can help you determine whether your facts would come within the court's ruling.

IRS Circular 230 Notice

Internal Revenue Service regulations state that only a formal opinion that meets specific requirements can be used to avoid tax penalties. Any tax advice in this communication is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer, because it does not meet the requirements of a formal opinion.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Armstrong Teasdale LLP | Attorney Advertising

Written by:


Armstrong Teasdale LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.