Taxation & Estate Planning

BUSH TAX CUTS EXPIRATION UPDATE

Posted on December 12, 2010
The last minute efforts of Congress and the President to deal with the expiration of the Bush tax cuts on December 31 have been interesting, to say the least. It has also contributed to making year-end tax planning the most complicated and speculative it has been in recent memory, if ever...

OVERPAYMENT AND UNDERPAYMENT RATES?JANUARY 2011

Posted on December 09, 2010

NO LOSSES TO ESTATE BENEFICIARIES WHEN THEY COULD RECEIVE NOTHING

Posted on December 07, 2010
Code §642(h)(1) permits the capital loss carryover of an estate to be carried over to the beneficiaries succeeding to the estate property upon termination of the estate. What happens if the beneficiaries do not actually succeed to any property? In a recent Chief Counsel Advice, the estate agreed with the IRS to turn over all of its assets to settle income tax liabilities of the decedent...

UNCERTAINTIES PILED UPON UNCERTAINTIES

Posted on December 04, 2010
On Thursday of this week, Senate Finance Committee Chair Baucus introduced an amendment to the Middle Class Tax Cut Act of 2010. It is more likely than not that this amendment will not be currently passed into law, but nobody knows for sure. Indeed, whether the Middle Class tax Cut Act will find its way into law is unknown...

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INNOCENT SPOUSE RELIEF GRANTED EVEN THOUGH WIFE KNEW TAXES MIGHT NOT BE PAID

Posted on December 01, 2010
Each spouse is jointly and severally liable for the tax, interest, and penalties (other than civil fraud penalty) arising from a joint return. However, the Internal Revenue Code provides various routes for relief for an ?innocent spouse.? One of those routes is relief under Code §6015(f)...

IS THE IRS IMPROPERLY EXAMINING THE RELIGIOUS AND POLITICAL DOCTRINE OF EXEMPT ORGANIZATION APPLICANTS?

Posted on November 27, 2010
The Internal Revenue Code allows nonprofit educational organizations to be exempt from income tax under Code §501(c)(3). In making a determination whether an organization is ?educational,? the IRS will determine whether an organization actually is engaged in educational activities...

CONTINUED AGRICULTURAL VALUATIONS WHILE HOLDING PROPERTY FOR SALE [FLORIDA]

Posted on November 22, 2010
Owners of investment real property in Florida often rent out their property to farmers - not so much for the rent but to obtain an agricultural classification for ad valorem tax purposes. The agricultural classification will typically result in much lower taxes...

APPLICABLE FEDERAL RATES?DECEMBER 2010

Posted on November 20, 2010

TURBOTAX DEFENSE REJECTED

Posted on November 17, 2010
Mr. and Mrs. Au erroneously deducted gambling losses to offset other income, in violation of Code §165(d). Code §165(d) only allows gambling losses to be deducted to the extent of gambling winnings. The IRS sought to impose the 20% accuracy-related penalty under Code §6662 for the understatement of tax...

FATCA IS OVERKILL

Posted on November 14, 2010
There are a lot of people in Washington D.C. that believe there are massive numbers of U.S. taxpayers who are avoiding U.S income taxes through offshore accounts and entities. To attack this avoidance, as part of the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act, P...

YEAR-END GIFTING TRAPS

Posted on November 10, 2010
The end of 2010 brings unique opportunities and problems relating to gifting. There is a strong interest in making gifts in 2010 since the maximum federal gift tax rate is 35%, and generation-skipping taxes do not apply. Absent a change in the law, come January 1, 2011 the maximum federal gift tax rate will increase to 55%, and generation-skipping taxes (at 55%) are again in effect...

CAN SEPARATED SPOUSES HAVE TWO HOMESTEADS? [FLORIDA]

Posted on November 07, 2010
In a recent Florida case, a separated husband and wife each had their own homesteads (although the wife?s was situated in New York). The local property appraiser denied granting a homestead exemption to the husband for his Florida residence. CONSTITUTIONAL PROVISIONS...

NO CHANGE IN 2011 ANNUAL EXCLUSION AMOUNT

Posted on October 30, 2010
While we are on the subject of 2011 inflation adjustments, due to a lack of significant inflation in 2010 the annual exclusion amount for gifts for federal gift taxes will remain at $13,000. This is the amount that a donor can gift to any given recipient in a calendar year that is not treated as a taxable gift...

2011 INFLATION ADJUSTMENTS FOR INTERNATIONAL PROVISIONS

Posted on October 30, 2010
The IRS has announced the following 2011 inflation adjustment amounts that relate to international issues: 1. EXPATRIATION. An individual with ?average annual net income tax? of more than $147,000 for the five taxable years ending before the date of the loss of United States citizenship under  §877(a)(2)(A) is a covered expatriate for purposes of   §877A(g)(1)...

THIRD PARTY CAPITAL CONTRIBUTIONS

Posted on October 24, 2010
A basic tenet of federal income tax is that all accessions to wealth are income to the recipient, absent a statutory exclusion. What happens if a for-profit corporation receives funds by the government ? is that income? It would seem silly ? the government giving money away with one hand, and then taking some of it back in tax with the other...

APPLICABLE FEDERAL RATES ? NOVEMBER 2010

Posted on October 19, 2010

IRS RULES FAVORABLY ON RESIDENCE INTEREST DEDUCTIONS

Posted on October 16, 2010
Generally, interest paid by a taxpayer on personal items is not deductible. However, the Code allows an interest deduction for "acquisition indebtedness" for a qualified residence of a taxpayer for up to $1 million of indebtedness. A taxpayer may also deduct interest on up to $100,000 of "home equity indebtedness...

FRAUDULENT HOMESTEAD CONVEYANCE AND INCOME TAXES

Posted on October 13, 2010
Florida?s Uniform Fraudulent Transfer Act will allow a creditor to reach an asset transferred from a debtor to a third party if the transfer is found to constitute a fraudulent transfer. However, Fla.Stats. §726.102(2)(b) will exempt transfers of assets that are generally exempt from creditors under nonbankruptcy law from the fraudulent conveyance rules...

NO ONE EVER SAID THE CODE IS A TWO WAY STREET

Posted on October 08, 2010
On May 6, the stock market fell victim to the ?flash crash.? In a short period of time, the market took a major dive, and then quickly recovered. Experts are still looking for what triggered the unusual movement. Many taxpayers who had standing stop-loss orders on their securities had their securities sold for a gain or loss due to the large percentage swing that occurred...

TREATMENT OF PROPERTY THAT IS BOTH RENTED AND SOLD

Posted on September 30, 2010
A taxpayer in the business of selling property holds it in inventory. A taxpayer that rents property does not. In many circumstances, rental treatment is superior to inventory treatment ? such property can be depreciated (and thus generate depreciation deductions), and it can be swapped in tax-free exchanges under Code Section 1031 for other like-kind property...

SUMMARY OF KEY PROVISIONS OF SMALL BUSINESS JOBS ACT OF 2010

Posted on September 25, 2010
Congress has now passed the Small Business Jobs Act of 2010. The Act provides some welcome tax relief to business that hopefully will spur growth and job creation. However, Congress was stingy, with most of the tax benefits expiring after 2011. I remember, even though it was many years ago, when if a tax benefit was a good idea, it was enacted permanently because it was a good idea, and would not expire after a few years...

SEPTEMBER 20 IS NOT A FREE PASS TO REFORMING DESIGNATED BENEFICIARY TRUSTS

Posted on September 23, 2010
In a recent Private Letter Ruling, the IRS addressed a trust established by a decedent that was a beneficiary of the decedent's IRA. It was clear from the trust instrument that the decedent desired that the IRA payouts be based on the age of the designated beneficiary so as to defer distributions and income taxes, pursuant to applicable tax rules...

GRAEGIN LOANS ? DO THE MATH!

Posted on September 19, 2010
There is an often an estate tax advantage to an estate borrowing funds, especially from related parties. If the estate is in a high estate tax bracket, it can deduct the interest, and thus save estate taxes. For example, if the estate is solidly in or above the 45% tax bracket, then the estate tax savings are at least 45% of the interest cost...

APPLICABLE FEDERAL RATES ? OCTOBER 2010

Posted on September 19, 2010

BRAGGING RIGHTS

Posted on September 18, 2010
The inaugural edition of the U.S. News & World Report law firm rankings came out this week. I am happy to note that our firm received Tier 1 rankings in the Miami metropolitan area in the areas of Tax Law and Estates and Trusts. We also received a Tier 2 national ranking in Tax Law...

2011 TAX HIKES LOOM

Posted on September 18, 2010
If the expiration of the 2001 tax breaks are allowed to proceed as planned, 2011 will see the highest tax hike in U.S. history. Discussion is heating up regarding extending some or all of the existing breaks, so perhaps not all of the changes will arrive in 2011...

PRENEED GUARDIAN DECLARATION HOLDS UP [FLORIDA]

Posted on September 12, 2010
Florida, along with many other states, allows a competent individual to prepare a written preneed guardian declaration that names a person to serve as guardian for the declarant in the event of incapacity. This is an important tool, allowing persons to name who shall be responsible for their person and property in the event of incapacity, and thus avoiding relatives, caretakers, or others who the declarant does not want to serve from being named guardian...

CAN A DISCLAIMER BE RESCINDED?

Posted on September 08, 2010
Craig and his sister were the two remaindermen that succeeded to his parents? property at the termination of  10 year QPRTs that the parents set up. Craig wanted to transfer his remainder interest in the property to his sister when the QPRTs terminated...

AN ELECTRONIC MINISTRY IS NOT A CHURCH

Posted on September 05, 2010
Code Section 501(c)(3) organizations are generally exempt from federal income taxes, and contributors may qualify for charitable deductions for their contributions. Such organizations by default are typically treated as "private foundations," but if qualified, they can achieve non-private foundation status...

CHECK-THE-BOX RELIEF FOR FOREIGN ENTITIES

Posted on September 03, 2010
Foreign entities that provide limited liability to their owners, shareholders, or members will generally be classified by the U.S. as corporations/associations for U.S. income tax purposes. However, if such entities make a check-the-box election with the IRS, they can be classified as a disregarded entity (if there is one owner) or a partnership (if there is more than one owner) - although some types of entities are not eligible at all for such elections...

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