Wills, Trusts & Estates Prof Blog

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Texas Tech Univ. School of Law

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Saturday, October 25, 2014

Article on Schedularity in the Tax System

Henry Ordower

Henry Ordower (Saint Louis University School of Law, Professor of Law) recently published an article entitled, Schedularity in U.S. Income Taxation and Its Effect on Tax Distributions, 108 Nw. L. Rev. 767, 905-924 (2014).  Provided below is the article’s abstract:

Income tax systems in some countries follow primarily scheduler models that classify income by type, match it with deductions from the same class, and compute a separate tax on each class.  The United States income tax uses a global tax model under which it taxes citizens and permanent residents on their worldwide income without regard to source or character.  The United States system is not purely global but includes scheduler elements.  This Article exposes embedded schedularity in the United States income tax in the three principal areas of investment income, personal services income, and tax free income.  The Article tests whether that schedularity enhances or undercuts the tax principles of horizontal and vertical equity that underlie the development of both global and scheduler tax systems in advanced economies.  Horizontal equity is a straightforward principle and seems an indisputable precept.  It requires that like taxpayers incur like tax burdens.  The principle of vertical equity is more nuanced and departs from the principle that as one’s income increases, one can and should contribute ever larger percentages of that income to supporting governmental services.  Vertical equity assumes that the wealthier one is, the less likely it is that an increased tax burden will diminish the individual’s welfare in a material way.  Conversely, the less wealthy one is, the more likely it is that an increased tax burden will diminish the individual’s welfare materially.  The vertical equity principle led to the development of the progressive rate structures.  While the Article observes that Congress uses scheduler elements to accomplish distributional policy goals, initially in order to protect progressivity, more recently schedularity has tended to increase overall regressivity in taxation.  The Article concludes that United States taxation seems to be moderately scheduler and that schedularity in the Untied States contributes to regressivity in taxation. 

October 25, 2014 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, October 23, 2014

FATCA Enforcement Efforts Continue to Increase

OfficerAs I have previously discussed, the Foreign Account Tax Compliance Act (FATCA) requires financial institutions to report large accounts held by U.S. account holders to ensure compliance with U.S. tax laws. Commitment to enforcement has been demonstrated through the use of investigative resources to indict alleged violators. Enforcement actions continue to increase, and the IRS has begun using customs holds as another method of catching those attempting to avoid taxes through foreign accounts.

See Sean M. Golding, FBAR & FATCA Tax Attorney – IRS Will Use Customs Holds to Facilitate FATCA Compliance, PR Log, Oct. 14, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

October 23, 2014 in Current Affairs, Current Events, Income Tax | Permalink | Comments (0) | TrackBack (0)

Article on Waivers of Limitation Periods in the Income Tax Act

Income TaxSas Ansari (York University - Osgoode Hall Law School) recently published an article entitled, Waivers of Limitation Periods in the Income Tax Act – Judicial Interpretations and Approaches, Osgoode Legal Studies Research Paper No. 50/ 2014. Provided below is the abstract from SSRN:

The Income Tax Act sets various time limited on actions by the Minister and the Taxpayer. These time limits are there to promote a balance between the need for proper administration of the Act in relation to each taxpayer’s affairs and certainty/finality for both the taxpayer and the Minister. One of such time period is the “normal reassessment period” found in section 152. The Act allows for a taxpayer to waive the normal reassessment period, thereby allowing the Minister to reassess the taxpayer beyond this time period.

This paper examines waivers of the normal reassessment period in the context of the Income Tax Act, examines the judicial interpretation and application of such waivers, and provides guidance for judges faced with waiver issues.

October 23, 2014 in Articles, Income Tax | Permalink | Comments (0) | TrackBack (0)

Monday, October 20, 2014

Conference on Planning Around Tax Entanglements

CLE Photo

Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. is holding the 16th Annual Conference entitled, The Web Our Clients Weave: Strategies for Helping Your Clients Plan Around and, if Necessary, Defend Tax Entanglements, in Dallas, Texas at the Cityplace Conference Center on October 28, 2014.  Provided below are just a few of the many topics that will be throughout the conference:

  • Estate Planning—Navigating the Potholes and Speed Bumps. This presentation will explore recent estate planning cases, their holdings and planning techniques.
  • The Affordable Care Act—Employer Planning Opportunities. This will focus on new employer provisions that take effect January 1, 2015.
  • Family Limited Partnerships. This presentation will discuss how family limited partnerships remain the least expensive and most flexible method of estate planning. 

October 20, 2014 in Conferences & CLE, Disability Planning - Health Care, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Treasury Report Asks IRS to Write Clearer

WriteThe Treasury Inspector General for Tax Administration has written a report that calls on the IRS to use clearer writing in letters and notices that are more understandable to taxpayers. As the report points out, not only does this request make sense, but is also the law under the Plain Writing Act of 2010. In addition to identifying the existing problems of writings for the IRS being difficult to understand, including not defining terms such as “Tax Lien,” it also included recommendations for creating processes to monitor and check the writings for plain language requirements prior to being sent out, and increasing training for IRS technical writers. The IRS responded that it has put in considerable effort to produce clear writing, and agreed to address three out of four of the recommendations in the report.

See Michael Cohn, IRS Urged to Use Plainer English, Accounting Today, Oct. 14, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 20, 2014 in Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, October 19, 2014

Retirement Planning for Singles

Single retiree

Retirement planning for couples can be difficult, however, when you are single, the planning can be that much harder. 

While many Americans will retire single for various different reasons (death of a spouse, divorce, changing lifestyles), the one thing senior singles have in common is that their retirement-planning needs can be very different from that of their married peers—and many of them are unprepared. 

A study by the Rand Corporation indicated that single people are at a greater risk of not saving enough for retirement than their married counterparts.  This may be because there are more forces eating away their income and resources.  For the newly widowed or divorced, housing costs may jump as well as living expenses. 

Furthermore, singles miss out on tax breaks.  Tax experts say that single adults will face steeper tax challenges as they near retirement age.  Without tax credits, a spouse exemption, and no one to realize the benefits of filing jointly, singles can take a large tax punch during earning years.  “To lessen the tax bite, I advise my single adult clients who own their won businesses or have side businesses and freelance income to set up a solo 401(k).”  The contributions consist of a salary deferral and a profit-sharing distribution. 

Once singles stop working, they must be smart about planning for withdrawals from their retirement accounts.  Assets like life insurance and alimony become less reliable sources of income, thus, singles should have other resources in place.

See Jane Hodges, Retirement-Planning Tips for Singles, The Wall Street Journal, Oct. 5, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 19, 2014 in Estate Planning - Generally, Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Friday, October 17, 2014

The 49th Annual Hecklering Institute on Estate Planning

CLE Photo

The University of Miami School of Law is hosting the 49th Annual Heckerling Institute on Estate Planning from January 12 – 16, 2015 at the Orlando World Center Marriott Resort and Convention Center in Orlando, Florida.  Not only is this conference a great place to network with attorneys, estate planners, charitable giving professionals, and the like, but attendees will also experience quality educational programming:

This year’s Institute offers practical guidance on both the tax and non-tax issues involved in individual and estate planning. In addition to traditional estate planning topics, the program will explore the increasingly important area of income tax planning for individuals, trusts, and estates, and will examine the intersection of income and wealth transfer tax planning. The program also includes extensive coverage of the non-tax topics of timely interest to estate planners, including asset protection, charitable giving, special needs planning, fiduciary administration, and planning with trusts. Attendees can choose to explore a broad range of topics in our general session lectures and afternoon panels, or can customize their educational experience by taking advantage of one of our specialized program tracks.

October 17, 2014 in Conferences & CLE, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, October 16, 2014

Article on Income Tax and Property Interests

Stephanie McMahon

Stephanie Hunter McMahon (Professor, University of Cincinnati College of Law) recently published an article entitled, A Bundle of Confusion for the Income Tax: What It Means to Own Something, 108 Nw. U. L. Rev. 3, 959-988.  Provided below is the article’s abstract:

Conceptions of property exist on a spectrum between the Blackstonian absolute dominion over an object to a bundle of rights and obligations that recognizes, if not encourages, the splitting of property interests among different people.  The development of the bundle of rights conception of property occurred roughly the same era as the enactment of the modern federal income tax.  Nevertheless, when Congress enacted the tax in 1913, it did not consider how the nuances of property, and the possible splitting of property interests in an income-producing item, might affect application of the tax.  Soon after the tax’s enactment, the Treasury Department and the courts were confronted with questions of who owned, and could be taxed on, what income.  As shown by an examination of family partnerships and synthetic leases, the government continues to struggle with determining who owns a sufficient property interest to be taxed because Congress has yet to define ownership for tax purposes. 

October 16, 2014 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, October 12, 2014

Tax Planning in Agricultural Industry

Farms

The agriculture industry has always had recurring income trends.  Cattle producers are looking at astonishing prices for their livestock in 2014, which leads many to be concerned about the tax bill that will inexorably follow during this period of prosperity.  Adding on to the high prices, many producers have received disaster payments from the Federal Government for losses from 2012 and 2013 in 2014.  This combination raises concern about cash basis taxpayers. 

When reducing income, there are several things to look at for agricultural producers.  The first is to purchase equipment and the second is to prepay expenses for the next year.  With alternating years, prepaying in the good years is a great way to even things out with the next bad year.  While this is a good strategy, it cannot be the only strategy in terms of long-term profitability. 

Buying capital purchases to reduce taxable income is a great strategy in terms of enhanced accelerated depreciation.  However, the favorable laws have been allowed to expire as of January 1, 2014 and without Congressional action, the law stands that there is a limit on Section 179 of $25,000 and no bonus depreciation.  Without the enhanced accelerated depreciation rates, the immediate benefit of purchasing capital assets are greatly reduced. 

One of the unique tax benefits used in agriculture is the ability to use Income Averaging.  This strategy is a must for all livestock producers this year as it allows cash basis taxpayers to carry income back to the three prior years and recalculate the tax in those years.  Other strategies include paying wages in periods of high income in order to reduce overall farm income for standard deductions. 

See Tina Barrett, Managing Your Taxes In A High Income World, Farms.com, Oct. 6, 2014.

October 12, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, October 5, 2014

Supreme Court to Hear Case on States Taxing Out-of-State Income

Supreme court

The United States Supreme Court will hear a case involving a Maryland couple that believes their out-of-state income should not be taxed by their state of residence. 

Brian and Karen Wynne argue that the income they earn in several other states through Maxim Healthcare Services Inc., a company Mr. Wynne partially owns, should not be taxed by Maryland if they pay the income taxes in those other states.  Although Maryland has an out-of-state income tax credit that can be used to offset state income taxes, there is no equivalent credit that can be used to offset county income taxes. 

In Maryland Tax Court the Wynne’s claimed that the partial credit violates the dormant Commerce Clause.  However, University of Maryland Carey School of Law Professor Mark Graber said the dormant Commerce Clause says “there are some state regulations of interstate commerce that are unconstitutional even when Congress does not act. . .  So there is no federal law that prohibits or requires states to give tax credits for taxes paid in other states.  But the claim the Wynne’s are making is that, in fact, Maryland’s failure to do so sufficiently burdens interstate commerce.” 

The Wynne’s counsel explains he believes they “shouldn’t have to pay double taxes” and the way in which Maryland structures its taxes punishes Mr. Wynne for growing a successful business.  Yet, Maryland argued in court documents that it has the right as a sovereign state to tax the entirety of its residents’ income, regardless of where the income was generated or if taxes on that income were paid in other states. 

The Supreme Court will begin its next session on Monday.  The case is set to be argued November 12.

See Ashley S. Westerman, Supreme Court to Hear Case on Right of States to Tax Out-of-State Income, Southern Maryland Online, Oct. 2, 2014. 

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

October 5, 2014 in Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)