Taxation & Estate Planning

BULLET POINT SUMMARY OF TAX PROVISIONS OF NEW STIMULUS ACT

Posted on February 14, 2009
The House and Senate versions of The American Recovery and Reinvestment Act of 2009 has cleared the conference committee. Assuming passage by both houses of Congress, the following tax provisions will be in the version that goes to President Obama for signature...

SECTION 1031 EXCHANGES AND DOCUMENTARY STAMP TAXES [FLORIDA]

Posted on February 10, 2009
Florida imposes documentary stamp taxes on deeds that transfer real property. In Section 1031 like-kind exchanges, an exchanged document will often be deeded twice ? first to an exchange accomodator titleholder (EAT), and then from the EAT to the ultimate purchaser...

BORROWING FROM A QUALIFIED PLAN

Posted on February 08, 2009
In times of economic contraction, retirement plan participants often look to their plan as a source of loans to help them through cash flow difficulties. This is especially so for the many taxpayers that have a large part of their savings tied up in retirement plans...

NOL CARRYBACK WAIVER CAN BE VOIDED IN BANKRUPTCY

Posted on February 05, 2009
A taxpayer with a net operating loss (NOL) can usually carryback that NOL for 2 years, and apply it in those prior years. Typically, the carryback will result in a refund of income tax. If the taxpayer makes an irrevocable election, it can forego the carryback and thus use the NOL in future years only...

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PARTNERSHIP VALUATION DISCOUNTS AT RISK

Posted on January 31, 2009
On January 9, 2009, Representative Earl Pomeroy introduced HR 436 ("Certain Estate Tax Relief Act of 2009"). The Bill would freeze the Federal estate tax exemption at $3,500,000 (the 2009 level), and retain the tax rate for estates exceeding that amount at 45 percent (50 percent for estates between $10 million and $23...

TAX PROVISIONS IN THE STIMULUS BILL

Posted on January 29, 2009
The House of Representatives has passed the American Recovery and Reinvestment Tax Act of 2009. The Senate will take up the bill next week. Pending reconciliation of the two bills, we can?t tell what the final provisions will be. Nonetheless, based on common provisions in both bills, it is likely that the following tax provisions will soon be enacted into law: -a new tax credit of up to $500 for working individuals and $1,000 for working families, calculated at a rate of 6...

A CLOSET IS NOT ENOUGH [FLORIDA]

Posted on January 25, 2009
Owners of a homestead in Florida are entitled to a reduction in their ad valorem taxes under the Florida Constitution homestead exemption. Fla.Stats. § 196.061 provides that ?[t]he rental of an entire dwelling previously claimed to be a homestead for tax purposes shall constitute the abandonment of said dwelling as a homestead?? (emphasis added)...

TRADEMARK LICENSING COSTS HAD TO BE CAPITALIZED BY PRODUCER

Posted on January 21, 2009
The uniform capitalization rules require a manufacturer to capitalize various costs into its produced inventory. Licensing costs incurred in securing the contractual right to use a trademark or other similar right associated with property produced are indirect costs that must be capitalized (to the extent the costs are properly allocable to property produced) under Treas...

FEBRUARY 2009 AFR?S

Posted on January 18, 2009

TAX RESULTS OF SETTLING DISPUTES INVOLVING QTIP TRUSTS

Posted on January 15, 2009
Modifying, transferring beneficial interests in, or making distributions from a QTIP trust, in context of the settlement of trust litigation or otherwise, involves numerous complex tax issues, including Section 2519 gift taxes, other possible gifts, estate taxes and income taxes...

DOC STAMPS DUE ON DEED BETWEEN COMMONLY CONTROLLED ENTITY (FLORIDA)

Posted on January 10, 2009
Beginning with Kuro, Inc. v. State, 713 So.2d 1021 (Fla.App. 2 Dist. May 15, 1998), and as finally confirmed by the Florida Supreme Court in Crescent Miami Center LLC in 2005, transfers of Florida real property from owners to wholly-owned entities are not subject to Florida documentary stamp taxes, at least when the property is unencumbered...

OBAMA SURPRISES WITH BUSINESS TAX BREAKS

Posted on January 08, 2009
In a surprising announcement, President-elect Obama has indicated that his upcoming stimulus package will include tax breaks for business. While lacking in details, the following breaks are expected to be included:an extension of the net operating loss carryback period to five years for 2008/2009 losses; a two-year extension of bonus first year depreciation;enhanced expensing for business property; andtax incentives for businesses that hire new workers...

DEPRECIATION DEDUCTIONS FOR LAND

Posted on January 03, 2009
Land (but not buildings and improvements on the land) is not subject to the allowance for depreciation. However, there is one method of obtaining depreciating deductions for land. A recent private letter ruling summarizes the method and the limitations on its use...

IRS ALLOWS "EXTRA" CHANGE IN INVESTMENTS FOR 529 PLANS

Posted on December 29, 2008
Section 529 plans are a popular method for savings and investments relating to education expenses. The plans allow investments to grow and be expended for qualified education expenses, free of income taxes. They also allow for contributors to use up to five years of present interest gift tax exclusions in one year, so as to avoid or limit gift taxes on funding of a plan account...

EXPANSION OF CONDUIT RULES

Posted on December 25, 2008
Section 7701(l) of the Code authorizes the Treasury Department to prescribe regulations recharacterizing a multiple-party financing transaction as a transaction directly among any two or more of such parties where the Secretary determines that such recharacterization is appropriate to prevent the avoidance of any tax imposed by the Code...

APPLICABLE FEDERAL RATES ? JANUARY 2009

Posted on December 21, 2008
The rates take a large reduction, per the Fed?s actions to bring down lending rates:

CREDITOR CONTINUITY OF INTEREST REGULATIONS ISSUED

Posted on December 16, 2008
Corporations can often combine or be acquired without any of the parties recognizing gain or loss under the corporate reorganization provisions. One of the requirements for such treatment is that the equity owners of the target corporation continue their equity ownership via acquiring a substantial equity interest in the acquiring corporation (or a parent of the acquiring corporation) ? this requirement is known as the continuity of interest requirement...

REQUIRED DISTRIBUTIONS FROM IRA?S AND OTHER PENSIONS SUSPENDED FOR 2009

Posted on December 14, 2008
IRA?s and other pension plans allow taxpayers to defer income taxes on contributed amounts and earnings until distribution. The deferral does not last forever ? under the required minimum distribution (RMD) rules, taxpayers must make certain prescribed minimum distributions each year after age 70 1/2...

IRS' INTERNATIONAL HIT LIST

Posted on December 10, 2008
IRS Commissioner Douglas Shulman recently spoke to the George Washington University International Tax Conference. The Commissioner addressed several areas that the IRS is concerned about in the international arena. With such expressions of concern, taxpayers with interests in these areas should be forewarned that stricter or adverse IRS attention to these areas can be anticipated (although some of these areas are already feeling the heat)...

IRS EXPRESSES HOSTILITY TO ROLLOVERS AS BUSINESS START-UPS

Posted on December 06, 2008
Many taxpayers have funds in IRA accounts. If they want to use the funds for a business venture, a distribution of the funds is needed. Such distributions are generally taxable, and if the owner is not old enough, a 10% penalty tax to boot is imposed...

TEST FOR RESIDENT ALIEN STATUS

Posted on December 04, 2008
For individuals who are not U.S. citizens, Code Section 7701(b) provides rules for determining whether the U.S. will treat them as resident aliens (and thus generally subject their worldwide income to U.S. income tax). I recently prepared a map of the test for a client ? for those who are interested it can be accessed here (http://tinyurl...

HIDDEN TRAPS ABOUND IN THE AREA OF EMPLOYER OWNED LIFE INSURANCE

Posted on November 27, 2008
Generally, life insurance proceeds are received by the beneficiary free of income taxes. However, in 2006, an important exception to that rule was applied for employer owned life insurance taken out on the life of an employee (EOLI). We first discussed the new exception under Code Section 101(j) back in August 2006 when it was enacted...

IRS ASSERTS NONOWNER CONTRIBUTIONS TO PARTNERSHIPS ARE TAXABLE

Posted on November 23, 2008
Both corporations and partnerships at times receive "capital contributions" from persons other than shareholders or partners/members. For example, such business entities often receive grants and subsidies from federal, State, and local governments...

APPLICABLE FEDERAL RATES SUMMARY - DECEMBER 2008

Posted on November 20, 2008

SEPARATION DOES NOT EQUAL DIVORCE

Posted on November 15, 2008
A husband and wife enter into a prenuptial agreement. The agreement provides that it continues to apply even through "separation and reconciliation." Instead of separating and reconciling, the couple divorces and remarries. The issue arises whether the agreement continues to apply to the new marriage...

IRS TARGETS SALE OF CHARITABLE TRUST INTEREST TRANSACTION

Posted on November 12, 2008
Taxpayers often use charitable remainder trusts to avoid current tax on appreciated property. This is usually accomplished by the contribution of appreciated property to a charitable remainder trust, and then the trust sells the asset. Since the trust is tax-exempt, no current income tax is due on the sale...

OBAMA AND ESTATE TAXES -WHAT TO EXPECT?

Posted on November 08, 2008
Presently, the unified credit is scheduled to shelter $3.5 million in assets per person in 2009. In 2010, there is no estate tax. In 2011, the unified credit is scheduled to return to $1 million. What can we expect of President-Elect Obama? Of course, its too soon to tell, but his campaign promise was to make permanent the 2009 rates and credit - a $3...

Creditor Protection for Athletes

Posted on November 08, 2008
I had the pleasure to lecture on the topic of asset/creditor protection for athletes to the Sports Financial Advisors Association Conference today. If you would like to read my outline, I have posted it online at http://tinyurl.com/6mmwc5.

DIVISION OF TRUST MINIMIZES SECTION 2519 DAMAGE

Posted on November 05, 2008
Section 2519 serves as a backstop to the marital deduction provisions of the Internal Revenue Code. When property passes into a QTIP trust for the benefit of a spouse, the transferor spouse (or the estate of the transferor spouse) avoids gift or estate taxes by electing the gift or estate tax marital deduction...

APPEALS COURT CHANGES ITS MIND ON HOMESTEAD EXEMPTION [FLORIDA]

Posted on November 01, 2008
Florida's Constitution provides that if a decedent's homestead passes to the heirs of the decedent, third party creditors of the decedent cannot reach or levy against the homestead. What happens if the decedent provides in his or her last Will that the homestead is devised to a child, but should be used (along with other non-homestead property that is specifically devised) to pay debts of the decedent if there are insufficient other assets? Florida's 3rd District Court of Appeals had previously provided that the constitutional protection trumps the decedent's direction, and thus the homestead would continue to be exempt from creditors of the decedent...

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