Tax Research Project 2021

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by Brittany Guillory1 view·Updated Oct 13, 2021
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  1. Good evening Whitney and Ed.
  2. So we're here to discuss your miraculous discovery of this
  3. Picasso painting.
  4. So we're going to begin with a few definitions to
  5. bring you up to speed and then we'll explain everything
  6. in detail and put it all together for you.
  7. Yeah in the year 29 2019 you and add purchasing
  8. anti desk for $600 a year later after purchasing the
  9. desk you had found a Picasso painting.
  10. The painting was appraised at 1.35 in December of 2020,
  11. You ended up selling it an option for 1.65 which
  12. was minus none of the fees and commissions.
  13. In April 2021, You and dad did end up and
  14. receive the 1.65 in May of 2021.
  15. So now that we've discussed the basic facts of your
  16. case, there is a very paramount case that happened in
  17. a similar situation called Sereni versus the United States.
  18. So the Saas Arenas where family who bought a piano
  19. for $15 at a garage sale is similar to where
  20. you bought your desk And they later found over $4,000
  21. worth of cash inside the piano.
  22. There's a couple of laws related to this in the
  23. I. R.
  24. S. Code regarding capital gains.
  25. Um And character of income.
  26. And those get really detailed and we'll discuss some of
  27. those in a little bit whenever we discuss capital gains.
  28. Um But the important thing is that when you found
  29. the Picasso painting within the desk, you didn't sell your
  30. desk for profit.
  31. So that original amount is not going to classify as
  32. capital gains, but whenever you sold your painting for a
  33. greater amount than that amount will qualify as capital gains.
  34. I just so this various capital gains keeps coming up.
  35. So what is capital gains?
  36. Capital gains is whenever you sell a piece of property
  37. for profit.
  38. So the appraisal of your painting Was for the 1.3
  39. Five million and it was sold for 1.65.
  40. So that difference there is going to be your gain
  41. on your capital or that gain of that property.
  42. So kind of to wrap this case up in your
  43. case um is that there was property that was found
  44. and you're still entitled to be paying taxes on that
  45. property because what we're classifying these objects, the cash found
  46. inside of this piano and you're painting that was found
  47. inside of the desk are classified as treasure troves.
  48. So that's going to be our next topic.
  49. Yeah. So since you're painting that you found is considered
  50. a treasure trove, I would like to give you a
  51. definition for that.
  52. And regulation 1.61-14 it provides that a treasure trove to
  53. the extent of its value in the United States currency
  54. constitutes gross income for the taxable year that is reduced
  55. undisputed possession Since the painting became in your possession in
  56. 2020, that will actually be the taxable year for your
  57. taxes whenever you gain the money from painting Since the
  58. tax return of 2020 will include the gross income from
  59. the painting.
  60. So moving on from talking about the painting, um let's
  61. kind of get into gross income.
  62. So what is gross income?
  63. Gross income includes income realized in any form, whether in
  64. money, property or services.
  65. And that's regulation 1.61.
  66. Yeah. In considering regulations 65 oh one, uh limitations on
  67. assessment collection states the amount of tax imposed should be
  68. assessment in three years that the return was filed since
  69. you came in possession of the painting In 2020.
  70. That actually ends up being the year that you were
  71. taxed. Um Since these two things are true, you must
  72. include the revenue from the painting and you're 2020 tax
  73. return. So considering everything kind of pulling everything together, the
  74. bottom line of what we really want to know is
  75. how much money of this money that you've received from
  76. selling this painting.
  77. Are you going to have to give to the government?
  78. So all of the things that we've aligned here, we've
  79. decided that your taxable revenue On your 2020 tax return
  80. is going to be that initial 1.35 million.
  81. Um that tax return is going to be taxed um
  82. at a certain rate in that comes up to It
  83. comes up to 499,500 and that's at a rate of
  84. 37% based on married file jointly for that for that
  85. year. So of that $1.35 million 499,500.
  86. Now earlier we discussed that capital gains concept And so
  87. that was the 1.35 million that it was assessed at.
  88. But you got you received 1.65 million From the auction.
  89. So the difference in those two amounts was 300,000.
  90. Now, capital gains is taxed at a lower rate than
  91. you're married file jointly status.
  92. Your basically your individual taxpayer status.
  93. So capital gains are taxed at 28%.
  94. So 28% of that $300,000 Is $84,000.
  95. Now the one point the 499,000 is going to be
  96. on your 2020 tax return.
  97. But that $84,000 is not gonna be due until you're
  98. 2021 tax return because that's the year that you receive
  99. that. So the difference in those is a little fine
  100. line there.
  101. So when the painting was found, that's when you pay
  102. the initial um tax on that amount.
  103. And then the capital gains was when the painting was
  104. actually sold in that year.
  105. So there's a little bit of difference there.
  106. But it actually saves you a little bit of money
  107. doing it that way because that capital gains tax again
  108. is lower than the married foul jointly personage.
  109. So again, pulling everything together.
  110. We really appreciate that you provided your confidence in us,
  111. and we were able to put this all together and
  112. kind of get you caught up to this new and
  113. exciting adventure that y'all are on and we hope you
  114. consider us for future endeavors.
  115. Thanks.