Taxation & Estate Planning

LLC INTEREST IS NOT THE SAME AS A LIMITED PARTNER INTEREST UNDER PAL RULES (ONCE AGAIN)

Posted on October 12, 2009
Code Section 469 provides that passive activity losses (PALs) cannot be used to offset nonpassive activity income, such as wages, dividends, or profits from nonpassive activities. A taxpayer will incur PALs as to losses from the conduct of a trade or business in which the taxpayer does not materially participate...

HOW NOT TO SET UP AND USE A FAMILY LIMITED PARTNERSHIP

Posted on October 07, 2009
A recent Tax Court Memorandum decision provides another example of how not to set up and operate an FLP. In this case, the taxpayers managed to violate Section 2036(a), and also have an indirect gift of property contributed.Go to http://tinyurl.com/y9dfj5z for a diagramed summary of the case [click on the '+' to expand the diagram sections]...

AUTHOR ADVOCATES USE OF LLC'S TO HOLD NON-U.S. ASSETS

Posted on October 01, 2009
In a recent article in Estate Planning, Michael Galligan advocates for the use of U.S. LLC's to hold the non-U.S. assets of U.S. persons for estate planning purposes. For my easy-to-read summary of the article, including the benefits and possible drawbacks of that planning approach, go to http://tiny...

VOLUNTARY DISCLOSURE PROGRAM EXTENDED UNTIL OCTOBER 15

Posted on September 21, 2009
The IRS has extended until October 15, 2009 the deadline for entering the voluntary disclosure program for unreported offshore accounts from the current September 23 date. The IRS also announced that there will be no more extensions.

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APPLICABLE FEDERAL RATES ? OCTOBER 2009

Posted on September 20, 2009

COMMUNITY PROPERTY PRINCIPLES DID NOT ATTACH TO COUPLE'S PROPERTY WHEN THEY MOVED TO COMMUNITY PROPERTY COUNTRY

Posted on September 16, 2009
Noordin Charania owned substantial holdings in the stock of a U.S. corporation when he died. Even though he was a nonresident of the U.S., his estate was taxable on that stock for U.S. estate tax purposes based on the U.S. situs of stock of a U.S. corporation...

PROCEDURES FINALIZED FOR CHALLENGING SOME GIFT TAX DETERMINATIONS

Posted on September 12, 2009
If a gift is reported on a gift tax return, the IRS may challenge the value of the transferred property. If the IRS increases the value, but the taxpayer has adequate unified credit to cover any increase in tax, there is no increase in actual tax that results at the time...

HARDSHIP DISTRIBUTION FROM RETIREMENT PLAN DOES NOT AVOID 10% PENALTY

Posted on September 08, 2009
In today's economic hard times, many employees are seeking early distribution from their qualified retirement plans at work to help cover expenses. If the plan allows for it, a "hardship" distribution can be made if due to an immediate and heavy financial need of the employee and is in an amount necessary to meet the financial need...

OBAMA TO MAKE IT EASIER FOR EMPLOYEES TO SAVE FOR RETIREMENT

Posted on September 06, 2009
In an effort to boost savings by employees, President Obama is seeking to make several changes that will make it easier for employees to save for retirement. Some of the changes can be implemented immediately by the President - others will require Congressional law changes...

IRA FOUND NOT EXEMPT FROM CREDITOR CLAIMS

Posted on August 29, 2009
Federal bankruptcy law generally provides that an individual retirement account (IRA) that is exempt from income tax is an exempt bankruptcy asset that cannot be reached by creditors. However, such exemption is not bulletproof, much to the chagrin of Ernest Willis...

VALUATION DISCOUNTS ALLOWED FOR DISREGARDED ENTITY INTERESTS

Posted on August 25, 2009
Under the "check the box" Treasury Regulations, an individual owning an interest in a single member LLC will be treated by default as owning the assets of the entity directly (absent an election to have the LLC taxed as a corporation). The Regulations provide that such disregarded entity treatment will be for all Federal tax purposes...

APPLICABLE FEDERAL RATES ? SEPTEMBER 2009

Posted on August 23, 2009

HIGHLIGHTS OF UBS SETTLEMENT

Posted on August 20, 2009
The Internal Revenue Service and the Department of Justice have entered into an agreement that will result in the IRS receiving an unprecedented amount of information on United States holders of accounts at the Swiss bank UBS. Highlights of agreement include:--Pursuant to a treaty request, the IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts...

WATCH OUT - DEADLINES APPROACHING FOR EXTENDED NOL CARRYBACKS

Posted on August 16, 2009
Net operating losses (NOLs) generally may be carried back 2 years and forward 20 years. However, for NOLs arising in tax years ending after Dec. 31, 2007, the American Recovery and Reinvestment Act of 2009 permits an eligible small business (ESB) to elect to increase the NOL carryback period for 2008 NOLs from 2 years to 3, 4, or 5 years...

FBAR FILING DATE EXTENDED FOR SOME FILERS

Posted on August 12, 2009
The area of FBAR filings (Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1) has been a hotbed of activity recently, for practitioners, taxpayers, and the IRS. In October 2008, the IRS revised the FBAR and the accompanying instructions...

POP QUIZ - FLORIDA APPORTIONMENT

Posted on August 08, 2009
BACKGROUND FACTS:Decedent dies, and his estate is subject to federal estate taxes. Part of his taxable estate assets pass under his Last Will and through his probate estate, and part of the assets consist of life insurance that passes outside of the probate estate...

BASIS OVERSTATEMENT DOES NOT TRIGGER 6 YEAR STATUTE OF LIMITATIONS

Posted on August 04, 2009
Under the Internal Revenue Code, the statute of limitations imposed on the IRS for assessing additional income tax is 3 years after the later of the date the tax return was filed or the due date of the tax return. However, a 6-year period of limitations applies when a taxpayer omits from gross income an amount that's greater than 25% of the amount of gross income stated in the return...

DISCOUNTING VOIDED VIA STEP TRANSACTION DOCTRINE

Posted on August 01, 2009
Oftentimes, taxpayers contribute assets to partnerships or LLCs, and then make a gift of ownership interests in the partnership or LLC and seek to apply a valuation discount to the gift. A recent District Court case voided the application of the discounts through the use of the step transaction doctrine...

CASH FOR CLUNKERS [FLORIDA]

Posted on July 30, 2009
If you are fortunate (unfortunate?) enough to qualify for the cash for clunkers program, the federal government will provide a $3,500 or $4,500 voucher toward the purchase or lease of a new, more fuel efficient vehicle when the purchaser or lessee surrenders an eligible trade-in to a participating dealer...

IRS CONFIRMS PRECIOUS METAL ETF'S CAN GENERATE COLLECTIBLES GAINS

Posted on July 25, 2009
Many investors purchase gold, silver, and other precious metals through exchange traded funds (ETFs). Since shares in ETFs are usually traded through stock exchanges, the question has arisen whether any long term gains on sale of such ETF metal shares will be subject to the standard 15% maximum income tax rate long term capital gains, or the 28% "collectibles" maximum tax rate that would otherwise apply to direct gains in such metals...

APPLICABLE FEDERAL RATES ? AUGUST 2009

Posted on July 22, 2009

CASUALTY LOSSES AND CHINESE DRYWALL

Posted on July 16, 2009
Many homeowners are suffering with damages to their residences from purportedly tainted Chinese drywall. The IRS has provided guidance on if and when damages may give rise to a casualty loss deduction under Code Section 163(h). The IRS Associate Chief Counsel indicates that such damages will meet the casualty loss requirements of being sudden, unexpected, or unusual, if the Environmental Protection Agency or the Consumer Safety Product Commission determines that such drywall emits chemical fumes that causes the extreme or unusual damages...

IRS PROVIDES MORE GUIDANCE (AND REQUIREMENTS) FOR COST SHARING DEVELOPMENT OF INTANGIBLES

Posted on July 11, 2009
Section 482 of the Internal Revenue Code requires arms-length pricing for transactions occurring between commonly controlled taxpayers. A principal objective of these rules is to assure that a fair amount of income and thus tax occurs within the U.S. taxing jurisdiction - that is, it seeks to prevent the shifting of income out of the U...

IRS MAY ISSUE RELIEF FOR SWAP PARTICIPANTS WITH BANKRUPT QUALIFIED INTERMEDIARIES

Posted on July 07, 2009
On May 24 of this year, I discussed how some taxpayers suffered economic losses in a Section 1031 exchange when funds or property were held for them by Qualified Intermediaries that went bankrupt. In letters sent by the IRS to a Senator and a Congressman, the has IRS indicated that even though like-kind exchanges run through such Qualified Intermediaries could not be completed due to the bankruptcy of a Qualified Intermediary and not through any fault of the taxpayers, the taxpayers still need to recognize gain (if there is gain) if the property they contributed to the exchange was disposed of by the Qualified Intermediary...

IRS CAN LEVY ON STOCK OPTIONS

Posted on July 03, 2009
In a recent Chief Counsel Advice (CCA), the IRS determined that it may enforce a levy by seizing and selling a taxpayer's executive stock options. That the options had restrictions on transferability was found not to impede seizure and sale.In the CCA, the taxpayer owned vested nonqualified stock options (NQSOs) and qualified stock options (ISOs) in a corporation...

UNDUE INFLUENCE PERMISSIBLE FOR TRUST REVOCATIONS [FLORIDA]

Posted on June 29, 2009
If an individual exercises undue influence in regard to the creation of a trust, the trust can be voided. Interestingly, if an individual exercises undue influence to convince a grantor to revoke his or her revocable trust, no challenge to the revocation is allowable...

REVISED ?INVERSION? REGULATIONS

Posted on June 24, 2009
NOTE: The following discussion relates to a narrow area of tax law relating to the transfer of a U.S. corporation or its business to a foreign corporation, so it may be of interest only to a small segment of readers. Section 7874 was enacted to foreclose many tax benefits from the transfer of a U...

JULY 2009 APPLICABLE FEDERAL RATES

Posted on June 21, 2009

IRS COMMISSIONER JOINS WITH TREASURY SECRETARY TO CHANGE PERSONAL USE OF BUSINESS CELL PHONE RULES

Posted on June 18, 2009
Numerous employers provide cell phones to their employees for business use. Unsurprisingly, such phones are often used by employees for both business and personal use. Code Section 132 provides that an employee may exclude from gross income the value of the cell phone use allocable to business use...

FOREIGNERS RELEASED FROM FBAR OBLIGATION

Posted on June 10, 2009
We previously wrote about how the instructions to Form TD F 90-22-1 (Report of Foreign Bank and Financial Accounts) (commonly referred to as the ?FBAR?) were recently revised to include some non-U.S. persons in the reporting net. Likely due to public concerns that requiring non-U...

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