Taxation & Estate Planning

APPLICABLE FEDERAL RATES ? FEBRUARY 2010

Posted on January 22, 2010

DETAILS OF IRS LITIGATION

Posted on January 18, 2010
Nina Olson, in her annual report to Congress, provides an interesting list of the 10 most litigated federal tax issues from June 1, 2008 to May 31, 2009 for which the court issued an opinion. The top 10 are (listed in order of most to least cases): Collection due process hearings; Summons enforcement; Trade or business expenses; Gross income; Accuracy-related penalties; Frivolous issue penalties; Actions to enforce federal tax liens or to subject property to payment of tax; Failure to file penalty and estimated tax penalty; Family status issues; and Relief from joint and several liability for spouses...

TAX COURT APPLIES HACKL TO LIMITED PARTNERSHIP INTEREST

Posted on January 15, 2010
Code Section 2503(b) allows taxpayers to make annual gifts to recipients of $13,000 per year (adjusted for inflation) without paying gift tax or using up any of their unified credit. To use Section 2503(b), the recipient of the gift must have a ?present interest? in the property received and not a ?future interest...

PROMISSORY NOTE ENFORCED WITHOUT DOC STAMPS [FLORIDA]

Posted on January 12, 2010
Florida imposes documentary stamp taxes on promissory notes and other written obligations to pay money. The tax is imposed at the rate of 35 cents per $100 of face value, although obligations that are not secured by real property are now [thankfully] subject to a $2,450 cap in the tax...

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RESTARTING IRA DISTRIBUTIONS IN 2010

Posted on January 09, 2010
IRA participants and defined contribution plan participants over age 70 1/2 have annual required minimum distribution requirements (RMDs) that require a minimum distribution each year. In 2009, economic relief legislation allowed taxpayers to skip the 2009 distribution...

TAX PREPARERS, PREPARE TO BE REGULATED

Posted on January 05, 2010
In the regulatory state that is the United States of America, more and more occupations are subject to regulation by some government body. The time has come to add paid tax return preparers to the list. The IRS has issued the results of a study that proposes registration, testing, and continuing education requirements for paid tax preparers...

HAPPY 2010!

Posted on January 01, 2010
I would like to wish all of my readers a happy and health New Year! 2010 looks to be an interesting year, with all kinds of questions and issues about gift and estate tax repeal and reform  to be addressed (and hopefully resolved). I would also like to thank all of my clients for the opportunity to be of service to them, for those who have directed clients my way for their most welcome referrals, to those who have provided interesting comments to blog entires, and to all of those clients and friends who favorably comment to me about this blog and our firm?s newsletter and thus give me the energy to hold to my self-imposed, twice-a-week blogging schedule...

PROBATE PROCEDURE FOR FILING LATE CLAIMS [FLORIDA]

Posted on January 01, 2010
One of the benefits of probate administration is the accelerated procedure for dealing with creditor claims. Creditors have only a 90 day period from the estate?s publication of a Notice to Creditors to submit a claim. Otherwise, the claim will be forever barred, regardless of its validity...

ESTATE TAX GROSS-UP OCCURS FOR GIFT TAXES PAID UNDER SECTION 2519 WITHIN 3 YEARS OF DEATH

Posted on December 26, 2009
[NOTE: This is a technical issue that is probably of interest to only a small subset of the readers of this blog. For more information on Section 2519, you can review my article from earlier this year entitled Tax Results of Settling Trust Litigation involving QTIP Trusts published in the January 2009 edition of Estate Planning, a WG&L publication...

?GIFT OVER? FORMULA CLAUSE RESPECTED BY TAX COURT

Posted on December 25, 2009
Taxpayers often desire to make gifts of difficult to value property by using their available unified credit  to cover the value of the gift and thus avoid current gift tax. The problem they face is that if the IRS is successful in proving a higher value for the property than the taxpayer, this could put the taxpayer over the unified credit amount and thus incur current gift taxes...

APPLICABLE FEDERAL RATES ? JANUARY 2010

Posted on December 24, 2009

CONGRESS FAILS TO ACT ON ESTATE TAXES

Posted on December 18, 2009
Congress has had nine years to clean up the unusual situation of there being no federal estate taxes in 2010, and then a reversion to 2001 rates and exemptions in 2011 and thereafter. Last minute efforts this month to avoid the repeal of the tax in 2010 have failed, and for the first time in many years, there will be no estate taxes (but only for 2010)...

SALE BY STATE OF UNCLAIMED STOCK TREATED AS A SECTION 1033 DISPOSITION

Posted on December 17, 2009
Many states have unclaimed property laws, which allow institutions and others that hold property on behalf of people that cannot be located to turn that money over to the state. After a given period, the state will typically then sell the property and add the funds to its general funds (if the property is already cash or bank account proceeds, no sale is needed)...

IRS GETS HAMMERED IN TRANSFER PRICING CASE

Posted on December 13, 2009
Transactions between related companies are subject to special scrutiny under Internal Revenue Code section 482, which requires that amounts paid between the companies be based on the "arms length" prices that unrelated companies would charge each other...

2 WITNESS RULE FOR LEASES [FLORIDA]

Posted on December 08, 2009
In a recent Florida case, a landlord and tenant entered into a 10 year lease. Each signed the lease, but no witnesses signed. The landlord sought to void the lease because the signatures of the parties were not witnessed by two witnesses.Fla.Stats. §689...

LEGISLATION FINALLY PASSED TO AVOID REPEAL OF ESTATE TAXES

Posted on December 07, 2009
Since the early days of George Bush, Jr.?s administration, 2010 has been out there as the year in which there will be no federal estate tax. Also since that time, we have been predicting for our clients that this would never come to pass, and that sometime before then the repeal would be repealed, and higher unified credit and lower maximum tax rates would be made permanent...

IRS REFUSES TO GIVE UP ON OVERSTATED BASIS STATUTE OF LIMITATIONS ISSUES

Posted on December 03, 2009
We have previously reviewed two cases that have held that a reduction in gain arising from an erroneous overstated tax basis in an asset is NOT an omission from gross income that can give rise to an extended six year statute of limitations for gross income omissions of 25% or more...

INTEREST RATES FOR TAX OVERPAYMENTS AND UNDERPAYMENTS (JANUARY 2010 QUARTER)

Posted on November 28, 2009
The IRS has announced the interest rates for tax overpayments and underpayments for the calendar quarter beginning January 1, 2010. For noncorporate taxpayers, the rate for both underpayments and overpayments will be 4% (unchanged). For corporations, the overpayment rate will be 3% (unchanged)...

IRS ALLOWS TAXPAYER TO COMBINE ACQUISITION INDEBTEDNESS AND HOME EQUITY INDEBTEDNESS

Posted on November 22, 2009
The Internal Revenue Code does not allow deductions for ?personal interest.? Nonetheless, qualified residence interest, which includes interest on acquisition indebtedness and home equity indebtedness on a qualified residence, is deductible. Generally, acquisition indebtedness is deductible only on the first $1 million of acquisition indebtedness...

APPLICABLE FEDERAL RATES ? DECEMBER 2009

Posted on November 19, 2009

ORDINARY INCOME ON SURRENDER OF LIFE INSURANCE POLICY

Posted on November 11, 2009
Borrowing from a life insurance policy is a tax-advantaged method of obtaining funds. Generally, a policy owner can borrow against the cash surrender value of non-term life insurance policies. The receipt of the loan proceeds is not a taxable event to the owner, even though part of the cash surrender value was created by untaxed earnings that accumulated in the life insurance policy...

SUMMARYOF NEW TAX ACT PROVISIONS

Posted on November 07, 2009
Congress passed last week the Worker, Homeownership, and Business Assistance Act of 2009. President Obama is expected to sign the new Act. Below is a summary of key provisions: A. Expansion of 5 Year NOL Carrybacks. The ability to carry back NOL?s for 5 years (instead of the normal 2 years) has been expanded to include 2009 losses  (previously the 5 year rule only applied to 2008)...

TAX INCREASES IN HEALTH BILL NOT INDEXED FOR INFLATION, AND WILL ALSO REACH CAPITAL GAINS AND DIVIDENDS

Posted on November 06, 2009
In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%. In 1981, Congress realized the inequity in these "stealth" tax increases by requiring tax brackets be indexed for inflation...

WILLFUL FAILURE TO PAY OVER WITHHOLDING TAXES APPLIES, EVEN THOUGH EMPLOYER DID NOT HAVE THE MONEY TO PAY IT OVER

Posted on November 03, 2009
A nursing home operator collected payroll taxes from his employees. Instead of paying the collected taxes over to the IRS, the operator spent them on other expenses. The IRS obtained criminal tax convictions under Code Section 7202. The nursing home operator appealed the conviction, claiming he could not have ?willfully? failed to pay over the taxes since he did not have the money to pay them even if he wanted to...

STATE AND LOCAL TAX ISSUES RELATING TO PASS-THROUGH ENTITIES

Posted on October 29, 2009
The U.S. allows pass-through treatment for partnerships and limited liability companies for federal income tax purposes. The issue remains how such entities and their owners will be taxed in those states and localities that impose income taxes. Most states and localities will respect the pass-through treatment of pass-through entities when applying their local income taxes...

NEXT IN THE IRS' SIGHTS - HIGH NET WORTH INDIVIDUALS

Posted on October 27, 2009
Basking in the glow of the recently completed offshore voluntary compliance program, IRS Commissioner Shulman in a recent speech revealed a new direction for IRS enforcement - high net worth individuals. The Commissioner noted the recent formation of a Global High Wealth Industry group housed in its Large and Mid-Size Business operating division...

SECTION 2053 REGULATIONS ADOPT "WAIT AND SEE" APPROACH

Posted on October 25, 2009
The IRS has issued final Regulations regarding the influence of post-death events on deductions under Code Section 2053 for claims and expenses. The Regulations intentionally adopt an interpretation under Section 2053 that events occurring after a decedent's death are to be considered when determining the amount deductible under all provisions of section 2053 and that deductions under section 2053 generally are limited to amounts actually paid by the estate in satisfaction of deductible expenses and claims...

APPLICABLE FEDERAL RATES ? NOVEMBER 2009

Posted on October 22, 2009

INHERITED IRA DOES NOT RECEIVE CREDITOR PROTECTION [FLORIDA]

Posted on October 21, 2009
In an interesting creditor protection case, Florida's Second District Court of Appeals held that an "inherited IRA" is not subject to creditor protection under Florida law, unlike regular IRAs that are held for the original owner/participant. In the case, an individual inherited his father's IRA...

IRS ISSUES GUIDANCE ON EXPATRIATION

Posted on October 17, 2009
It has taken awhile, but the IRS issued extensive guidance this week on the operation of the revised expatriation rules under Code Section 877A.Some highlights and items covered: -The Code requires expatriates to recognize gain or loss as if they sold all their assets for fair market value on the day before expatriation...

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