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Tarabour Foils Million-Dollar Tax Penalty

August 30, 2022

Sheila Tarabour (Partner-Florham Park, NJ) answered a request from Bill Bogaert (Partner-Boston, MA) to provide his law firm client with pre-suit assistance under its malpractice policy. The matter arose from the failure of an attorney in the firm, who served as trustee of three trusts, to timely pay a “generation-skipping transfer tax“ and to report the death of a trust beneficiary, which gave rise to the generation-skipping transfer tax liability. Due to late payment, the IRS imposed penalties on each of the three trusts for $93,000, $205,000 and $952,000, respectively. Following Sheila’s initial requests for abatement of the penalties, the IRS eliminated the two smaller penalties, leaving the $952,000 penalty still due. Sheila artfully sought consideration by the IRS Appeals Division and was advised that following her arguments, the Division agreed to abate the penalty of $952,000 as well. The decision also eliminated interest, so the value of the abatement was more than $1 million. Had the penalty not been abated, there could have been costly tax litigation and a likely legal malpractice action.

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