Arthur Marsh was elderly and suffered from various medical problems, including dementia. In early 2007, he hired Angelina Alhadi to work as his caregiver. He paid her well beyond the scope of her services. By the fall of 2008, Marsh had written Alhadi checks totaling nearly $800,000.
New Case Alert
Filed April 21, 2016, U.S. Tax Court Cite as T.C. Memo. 2016-74
In October 2008, he wrote her five checks totaling $500,000. Vanguard Group raised concerns about the five checks and declined to honor them. Vanguard sent an elder abuse report to the California Department of Health and Human Services. After the Department investigated, the Santa Clara Public Guardian petitioned to establish a temporary conservatorship, which the Probate Court granted in January 2009. On behalf of Marsh’s trust, Santa Clara County filed Forms 1099 for Alhadi for the years 2007 and 2008. Alhadi failed to report the income she received from Marsh. The IRS asserted deficiencies and penalties on a total unreported income of more than $1 million.
The Tax Court determined the money Alhadi received from Marsh was taxable income. Applying California law, the Tax Court determined the money was not a gift because Alhadi exerted undue influence over Marsh. There was no evidence Marsh loaned the money to Alhadi. Additionally, the Tax Court determined Alhadi owed self-employment tax, and her 2007 and 2008 tax returns were fraudulent.