Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, April 28, 2016

Program That Offsets Tax Refunds Against Tax Debts Tightened By IRS

Irs2The Internal Revenue Service (IRS) is making changes to its procedures and computer systems in order to better identify a taxpayers outstanding tax debts and then subtract those debts from the taxpayers refund.  This new procedure will have a particular impact on the owners of small businesses.  “A new report from the Treasury Inspector General for Tax Administration found that the IRS needs to revise its computer programming and correct its procedures to ensure it identifies all available tax refunds to offset a taxpayer’s federal tax liabilities.”  This article discusses some of the details related to the changes that the IRS will be making.  Taxpayers should be aware of the rules so that they can benefit from them and avoid problems.  It is a good idea to meet with an experienced tax professional for more personalized advice.

See Michael Cohn, IRS to Tighten Program Offsetting Tax Refunds against Tax Debts, Accounting Today, April 28, 2016.

April 28, 2016 in Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Tuesday, April 26, 2016

Silent Distributions Granted 60-Day Rollover Extensions From IRS

JudgmentThe IRS has released four private letter rulings that will grant an extension to the 60-day rollover period.  Typically retirement account distributions may be rolled over into another IRA within 60 days.  This article discusses some of the facts that brought on these private letter rulings.  One of the rulings dealt with a situation involving funds that were not qualified to act as an IRA custodian.  The other ruling involve a Trust company that resigned as IRA Trustee.  In each of these cases the IRS granted relief under the authority provided by Internal Revenue Code Section 408(d)(3)(1).  “The Secretary of the Treasury may waive the 60-day requirement under Sections 408(d)(3)(A) and 408(d)(3)(D) when the failure to waive such requirement would be against equity or good conscience, including casualty, disaster or other events beyond the reasonable control of the individual IRA owner who’s subject to the 60-day rollover requirement.”

See Michael J. Jones, IRS Grants 60-Day Rollover Extensions For Silent Distributions, Wealth Management, April 26, 2016.

April 26, 2016 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Tax Consequences Dealing With The Early Termination Of A Generation-Skipping Taxable Marital Trust

Irs2An IRS ruling recently held that a surviving spouse was the beneficiary of two marital trusts that were established under the late spouses revocable trust agreement.  One of these trusts was exempt from the generation-skipping transfer tax (GST) while the other was not.  “The provisions of each marital trust provided for the surviving spouse to receive all income during life and granted to the surviving spouse a testamentary general power of appointment (POA) over the assets in the GST taxable trust.”  This article discusses Revenue Procedure 2001-38 which sets forth a rule “that a qualified terminable interest property (QTIP) election is treated as null and void when the election isn’t necessary to reduce the estate tax liability to zero.”  They held that a release of a general Power of Attorney (POA) created a taxable gift under IRC Section 2514(b). 

See Andrew M. Nerney and Andrew B. Seiken, IRS Rules on Tax Consequences Associated With Early Termination of a Generation-Skipping Taxable Marital Trust, Wealth Management, April 25, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.

April 26, 2016 in Elder Law, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

The IRS Might Not Be Big Brother But It Is Watching Your 401(k)

IRSEveryone wants to avoid taxes and will naturally take advantage of any loophole that can be found in order to reach that goal. For many, that route is not reporting income that might be earned or come into during the course of the year. However, one popular item that is often not reported is income from distributions from a 401(k). Many people assume that there is no record of the distribution so they never claim the income on their taxes. However, cashing out requires a 1099-R to be issued to be issued to the taxpayer which contains information about the distribution that is also reported to the IRS. Failure to timely report the income from the 401(k) will result in penalties and interest but there are some legal options to avoid taxes. The easiest way  is to roll over the account into another 401(k) or IRA which avoids any tax on the transfer. But if you are under age and wanting to take the money directly then prepare to pay the penalty.

See, Does the IRS Know If I Cashed Out a 401(k)?, The Motley Fool, April 24, 2016.

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

April 26, 2016 in Income Tax | Permalink | Comments (0)

Monday, April 25, 2016

Program-Related Investments For Foundations Approved By IRS

Program investmentsThe Internal Revenue Service (IRS) has announced that a wide array of investments will be able to qualify as program related.  Private foundations will now be able to use a wide variety of financial tools to achieve their charitable goals.  “Last week, the U.S. Treasury Department and the Internal Revenue Service finalized regulations easing the way for private foundations to make program-related investments.”  This article provides important information about how the new regulations will apply.  Private foundations will now be given more options than what they had in the past.  The hope is that these new regulatory announcements will help encourage more charitable giving by making the tax regulations more accommodating.  The public policy goal is to create an incentive for these private foundations to stay in business.

See Michael S. Fischer, IRS Oks Program-Related Investments for Foundation, Think Advisor, April 25, 2016.

April 25, 2016 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Saturday, April 23, 2016

IRS Scammers Using Gift Cards, Money Transfers As Way To Bilk Taxpayers

IRSIn recent years the number of scams arising during tax season has done nothing but rise as illicit organizations strong arm people, usually those that are low income or elderly, into making "payments" on fake debts. But recently, a new trend has arisen, prompting a warning from the Treasury Inspector General, warning people of callers requesting tax payments be made using gift cards or money wiring services. For example, some con artist have requested that payment be made using something like an iTunes gift card or other devise that is virtually untraceable once sent away. Also, the Inspector General stressed that the IRS will never require that payment be made using a wire service such as Western Union or directly into a bank account. The IRS always uses letters to forewarn a taxpayer of potential problems with multiple copies being sent long before any drastic action, such as a levy, is taken. So if someone comes calling saying there is a tax problem, politely decline to speak with them and check your mail for notices or contact the IRS directly in order to ascertain the true situation.

See Michael Cohn, IRS Scammers Demand Payments on iTunes Gift Cards, Accounting Today, April 22, 2016.

April 23, 2016 in Income Tax | Permalink | Comments (0)

Friday, April 22, 2016

Filing Taxes For A Loved One Who Passed Away

Tax filingNothing is more certain than death and taxes, and death does not typically relieve an estate of tax liability.  This article provides a list of things that people should keep in mind if they ever find themselves in the unenviable position of doing the taxes for a deceased loved one.  That person will first need to find out if they even have the authority to file the decedent’s taxes.  It might be a very good idea to seek out the assistance of a qualified tax professional who can file the tax returns.  There is a lot of important paperwork that people will need to gather before filing the deceased loved one’s taxes.  This is a difficult and unenviable task and there are tax professionals that people should seek out to help with this important work.

See Geoff Williams, How to File Final Taxes for a Deceased Loved One, U.S. News & World Report, April 22, 2016.

April 22, 2016 in Estate Planning - Generally, Income Tax, Wills | Permalink | Comments (0)

How Certain Assets Can Be Used To Reduce Or Avoid Taxes

YachtThe controversy surrounding the release of the Panama Papers has placed the issue of tax avoidance back on the public radar.  When people think about tax avoidance strategies that the wealthy use they often imagine a hidden offshore bank account in some remote place in the Caribbean.  The truth of the matter is that there are many legal tax avoidance strategies that people can use here in the United States.  This article discusses how investing in certain assets can help people reduce or avoid certain taxes.  In some states art collectors can sidestep a use tax by permitting their art to be publicly displayed for a specified period of time.  This column also explains some of the tax benefits that people can obtain when investing in oil or owning a yacht. 

See Lawrence Light, Assets the Ultra-Rich Use for Reducing (or Avoiding) Taxes, Investopedia, April 22, 2016.

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

April 22, 2016 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Thursday, April 21, 2016

IRS Discovers More Than 30,000 Tax Returns Involving ID Theft

IRSIdentity theft is a major problem in the United States and the IRS has been attempting to address the issue.  “The Internal Revenue Service’s expanded use of controls this tax season to identify fraudulent refund claims before accepting them into its processing system has allowed the IRS to identify approximately 35,000 fraudulent e-filed tax returns and 741 paper tax returns as of Feb. 29, 2016, according to a new government report.”  The extra funding that congress has provided the IRS this season has allowed them to implement many of these programs that enabled them to identify these fraudulent returns.  The IRS also plans to assist more tax payers with more face-to-face contact at its walk-in taxpayer assistance centers. 

See Michael Cohn, IRS Caught Over 30,000 Tax Returns Involving ID Theft, Accounting Today, April 21, 2016.

April 21, 2016 in Estate Planning - Generally, Income Tax, Web/Tech | Permalink | Comments (1)

Article On The Difficulties In Taxing Wealth

ArticleMiranda Perry Fleischer (Professor, University of San Diego School of Law) recently published an article entitled, Not so Fast: The Hidden Difficulties of Taxing Wealth, San Diego Legal Studies Paper No. 16-213. Provided below is an abstract of the article:

As an antidote to increasing inequality, policymakers and academics frequently call for heavier taxes on the wealthy. To those outside the tax academy, proposals such as increasing marginal rates, implementing a wealth tax, or strengthening the estate tax likely sound like variations on the same theme. Many discussions of using the tax system to fight inequality therefore ignore differences among tax instruments. As this Essay shows, using the tax system to fight inequality requires careful consideration of both normative and practical concerns. Certain goals (for example, the concern that wealth concentrations harm the political and economic systems) suggest taxing wealth itself via an annual wealth tax as an ideal solution. Not only would such a tax be hobbled by administrative and valuation concerns, however, it is likely unconstitutional. The optimal second-best solution would be to tax capital gains at death, thereby closing the loophole that allows untaxed appreciation at death forever to escape taxation. In contrast, other goals (such as equality of opportunity) counsel taxing wealth transfers as an ideal matter. Best reflecting that goal is an accessions tax that taxes transferees on the cumulative amount of gifts and bequests received. One unintended consequence of wealth transfer taxes, however, is that they likely spur families to engage in greater consumption, much of which may exacerbate inequality of opportunity. This consequence means that taxation must also be coupled with greater leveling up efforts that provide children born to less-financially advantaged families with opportunities to develop their talents and abilities.

April 21, 2016 in Articles, Income Tax | Permalink | Comments (0)