Taxation & Estate Planning

INHERITED IRA?S?BANKRUPTCY PROTECTION

Posted on March 28, 2011
Last March, we discussed the bankruptcy case In re Chilton. That case held that unlike a traditional individual retirement account (IRA), an inherited IRA is not an exempt asset in bankruptcy. Our prior discussion can be read here. That case has now been reversed...

OBTAINING ESTATE TAX DEDUCTIONS VIA SETTLEMENT

Posted on March 24, 2011
Oftentimes, parties in litigation will direct property to a spouse or charity in settlement, and seek a marital or charitable deduction. At times, such settlements are motivated by and structured around the estate tax deduction. However, litigants or their counsel oftentimes do not realize that the deductions cannot be created out of whole cloth ? there must be a bona fide dispute regarding the entitlement of the spouse or charity to the payment...

APPLICABLE FEDERAL RATES?APRIL 2011

Posted on March 22, 2011

HOMESTEAD WAIVER IMPUTED TO WARRANTY DEED [FLORIDA]

Posted on March 19, 2011
The Florida Constitution prohibits a decedent from devising his or her homestead to third parties if the decedent is surviving by a spouse at death. When there are no surviving lineal descendants of the decedent, the surviving spouse will receive 100% of the homestead if an invalid devise is attempted...

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2009 FILING AND AUDIT STATISTICS HIGHLIGHTS

Posted on March 15, 2011
The IRS has issued information from the 2009 income tax filing season. As a voluntary compliance system, taxpayers often are interested to know their chances of audit. Below are some interesting facts and statistics. Individual returns filed 142,823,105 Audits of individual returns 1,581,394 Individual audits that were only correspondence audits 78...

IRS WILL NOT EXTEND SECTION 118 CAPITAL CONTRIBUTION CONCEPTS TO NONCORPORATE ENTITIES

Posted on March 12, 2011
Gross income generally includes all income from whatever source derived. At times, entities may receive amounts from nonowners that enhance its capital. For example, local government or groups may make contributions to encourage an entity to set up or expand business in a locality...

DYNASTY TRUSTS IN THE CROSS-HAIRS

Posted on March 07, 2011
A dynasty trust is a trust that provides for an existence that may span many generations. Once upon a time, the rule against perpetuities limited the term of a trust to 2 or 3 generations at most. Now, many states have no limits on the term of a trust, or have very long limits (such as Florida)...

FINCEN FINALIZES FBAR REPORTING REGULATIONS

Posted on March 06, 2011
FinCEN has issued final regulations addressing various FBAR reporting issues. These rules are effective as of March 28, 2011 for reported due by June 30, 2011 for 2010 years and thereafter. The new regulations do not address all reporting issues, but they do provide a fair amount of clarification...

COURT HAS NO MERCY FOR BOTCHED ESTATE TAX PAYMENT EXTENSION

Posted on February 26, 2011
In a recent appellate case, the 9th Circuit Court of Appeals upheld the trial court in applying failure to pay penalties for late estate taxes, even though a request for extension of payment could be inferred from an extension request filed by the taxpayer...

INDIRECT LOAN DOESN?T AVOID IRA LIMITATIONS

Posted on February 23, 2011
Generally, an IRA beneficiary cannot enter into a loan transaction with the IRA. Per Code §4975(c)(1)(B), the lending of money between a plan and a disqualified person is a prohibited transaction. For this purpose, a ?plan? includes an IRA. Code §4975(e)(1)...

APPLICABLE FEDERAL RATES?MARCH 2011

Posted on February 20, 2011
COMMENT: Is the time for low-rate planning running out?

IRS RESOLVES (SOMEWHAT) THE FILING DEADLINE OF THE ELECTION OUT OF FEDERAL ESTATE TAX FOR 2010 DECEDENTS

Posted on February 16, 2011
Prior to the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ("TRA 2010"), the estates of persons dying in 2010 were exempted from federal estate tax, and were subject to a restrictive basis step-up regime...

NEW OFFSHORE VOLUNTARY DISCLOSURE INITIATIVE

Posted on February 13, 2011
About 15,000 taxpayers came forward in 2009 in an amnesty initiative that allowed taxpayers to come clean on offshore holdings and unreported offshore income. The IRS has now introduced a similar initiative that will run through August 31, 2011. The principal benefits to taxpayers for using the program are avoiding criminal penalties, and limits on overall penalties that might otherwise apply (such as near-confiscatory FBAR penalties)...

HOW NOT TO OBTAIN A FRACTIONAL OWNERSHIP VALUATION REDUCTION

Posted on February 07, 2011
If more than one person owns a fractional interest in property, the sum of the value of each part may be less than the whole for transfer tax purposes. For example, if Bill and Mary own a parcel of land worth $1,000,000 as 50/50 tenants in common, at Bill?s death his interest is likely to be valued at less than $500,000 to reflect Bill?s lack of control and costs of partition...

REPEAL OF 1099 REPORTING MAY COME TO FRUITION

Posted on February 03, 2011
The health care reform act including a provision that will require business owners to report to the IRS on Form 1099 all payments in excess of $600 each year. That provision was heavily criticized by business interests for the expensive and time-consuming reporting burden it would impose...

BLACKWATER IS NOT PART OF THE ARMY

Posted on February 03, 2011
A recent Tax Court case is interesting, not because of the tax principles involved but because of its unusual subject matter. In the case, the taxpayer worked for Blackwater Security Consulting (Blackwater), performing dangerous security work in Iraq that related to military operations...

APPEALS COURT BREATHES NEW LIFE INTO OVERSTATED BASIS ISSUE

Posted on January 29, 2011
On several occasions, we have written about cases where courts have held that the six-year extended statute of limitations for a 25% omission of gross income from an income tax return will not apply when the unreported income arises from the taxpayer overstating his basis in a sold asset...

TAX INCENTIVES IN THE SMALL BUSINESS JOBS ACT OF 2010

Posted on January 25, 2011
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IRS SAYS IT IS READY NOW FOR 2010 RETURNS

Posted on January 23, 2011
On December 30, 2010, the IRS advised certain taxpayers to wait until mid or late February, 2011 to file their income tax returns for 2010. This was because the IRS needed time to reprogram its computers to reflect the 2010 Tax Leave Act's changes. Taxpayers that were affected by the delay are those claiming: --Itemized deductions on Schedule A; --above-the-line deductions for higher education tuition and fees; and --about-the-line deductions for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250...

APPLICABLE FEDERAL RATES?FEBRUARY 2011

Posted on January 21, 2011

IRS EXPANDS SIMPLIFIED FILINGS FOR SMALLER EXEMPT ORGANIZATIONS

Posted on January 16, 2011
The IRS has doubled the $25,000 gross receipts threshold to $50,000 that allows exempt organizations to file an ?e-postcard? Form 990-N, in lieu of a full Form 990. More particularly, an exempt organization with annual gross receipts of less than $50,000 can use the Form 990-N: --if for the first year of existence, total gross receipts (including amounts pledged by donors) are $75,000 or less; --if in the second or third year, $60,000 or less; --if in fourth or later year, $50,000 or less...

PRESENTATION MATERIALS AVAILABLE

Posted on January 16, 2011
For any that are interested, the powerpoint presentation and full outline from my presentation last week on the foreign tax provisions under FATCA (as part of the 2010 HIRE Act) at the 29th International Tax Conference in Miami are available online here...

AMENDED RETURNS AND THE TIMELY MAILED/TIMELY FILED RULE

Posted on January 10, 2011
A recent Chief Counsel Advice reveals the quirky nature of the timely mailed/timely filed rule as to amended returns. The CCA notes that the rule which treats a return as filed as of the date of mailing under Code Section 7502 will NOT apply to an amended return that shows an increase in tax due...

TREASURY SET TO CHASE OFF MORE FOREIGN CAPITAL

Posted on January 08, 2011
The U.S. does not tax nonresident aliens on interest earned on their U.S. bank deposits. This is an implementation of a policy to draw their capital to the U.S. The Treasury Department doesn?t care too much about this policy ? its mission is to increase tax compliance and collections...

WHOLESALE CLUB PURCHASES CAN BE DEDUCTIBLE, BUT?

Posted on January 05, 2011
A semi-secret of many restaurants and stores is that a large part of their ingredients and inventory of items for sale are purchased at wholesale clubs, such as Costco and Sam?s Club. Such purchases are a testament to the favorable prices available at such clubs that are available to both businesses and individual shoppers...

APPLICATION OF NONDISCRIMINATION RULES TO GROUP HEALTH PLANS DEFERRED

Posted on January 02, 2011
In the past, there were no nondiscrimination rules that applied to employer-sponsored health coverage, outside of self-insured medical reimbursement plans. By ?nondiscrimination,? this means that plans cannot be more favorable to highly compensated employees than to other employees...

ADDITIONAL NEW TAX LAW PROVISIONS

Posted on January 02, 2011
In our last installment of the review of the key tax provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, we take a quick look and some other key provisions of the Act: I. Rates, Exemptions and Special Rules...

PROVISIONS OF THE NEW TAX ACT ? FOREIGN PROVISIONS

Posted on December 25, 2010
Unlike the transfer tax area, only modest changes were made to the foreign provisions of the Internal Revenue Code. Continuing our review of the changes, below is a summary of the new provisions, most of which relate to temporary extensions of various favorable rules...

PROVISIONS OF THE NEW TAX LAW

Posted on December 21, 2010
I will undertake to summarize the key provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 over several postings. Let?s start with the new transfer tax provisions. Note below that there are some unique opportunities for conducting generation skipping transfers prior to 1/1/2011...

TAX RELIEF APPROACHING

Posted on December 15, 2010
With the passage of the tax bill today in the Senate, it is looking more and more likely that the Bush tax cuts will be extended for 2 more years, and favorable changes to estate, gift, and generation skipping taxes will be enacted into law. Consideration by the House is next...

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