The Service has recently issued two memoranda, IRS SBSE Memorandum, SBSE-04-1211-101 and IRS SBSE Memorandum, SBSE-04-1211-103, to provide interim guidance for the Internal Revenue Manual concerning Gift Tax Examinations, specifically providing guidance concerning identifying prior previously undisclosed gifts.
Will an Audit of One Gift Tax Return Lead to an Audit of All Gift Tax Returns?
Memorandum 103 states that the examiner is now responsible for requesting a transcript of all prior gift tax returns that the taxpayer has filed with the IRS, and for obtaining copies of all such returns from the Service Center where the return was filed, from the C-Site in Kansas City, Missouri, prior to starting the examination, or from the taxpayer once the examination has commenced. The examiner is then to determine the statute of limitations for each gift tax return, and to “probe for undisclosed transfers.” These new IRM instructions would seem to lead to audit of all of the taxpayer’s gift tax returns on the selection for audit of any of the taxpayer’s gift tax returns.
When Does the Statute of Limitations Start to Run?
Memorandum 101 discusses the gift tax statute of limitations in estate and gift tax examinations. (more…)
The IRS has released its annual Data Book, 2011, which it describes as follows: “This report describes activities conducted by the Internal Revenue Service during Fiscal Year 2011 (October 1, 2010, through September 30, 2011). It provides information on returns filed and taxes collected, enforcement, taxpayer assistance, the IRS budget and workforce, and other selected activities.”
As seen on page 22 of the report, what many may find interesting is that, of 140,837,499 individual income tax returns filed last year, 1,564,690 (or 1.1%) were examined by the IRS.
Under the “What’s New” section of the Instructions for Form 709, there does not appear to be much new. Set out in this section are the amounts in 2011 for the annual exclusion ($13,000) and for the annual exclusion for non-U.S. citizen spouses ($136,000), the due date in 2012 for the 2011 Form 709 (4/17/2012), the unified credit for 2011 ($1,730,800) and the top gift tax and GST rates for 2011 (35%), all of which is well-known.
However there is one section that is new in the Instructions to the Form 709 that is not mentioned in the “What’s New” section. (more…)
In an unusual ruling, the IRS shows it has a heart when it comes to helping a minor recover inherited funds misappropriated by the minor’s mother. In PLR 201139011, the Service permitted the minor to contribute funds to an inherited IRA that were inappropriately distributed in a lump sum from a qualified plan she inherited from deceased father.
The minor, whom we’ll call Alice, was 13 when her father, whom we’ll call Eric, died. Eric, who was unmarried at the time of his death, had designated Alice as the beneficiary of his qualified plan. While Alice could have arranged for a trustee to trustee transfer of the qualified plan benefits to an inherited IRA, Alice’s mother and guardian, whom we’ll call Francis, instead arranged for the plan administrator to make a lump sum distribution of the benefits. Francis then reported the distribution on a Form 1040 filed for Alice for 2008 and paid the income tax on the distribution. In 2009, a petition was filed (by an undisclosed person) seeking the appointment of a financial institution as conservator for Alice. Once Bank was appointed as Alice’s conservator, Bank filed suit against Francis for recovery of the qualified plan distribution.
In Notice 2011-82, 2011-42 IRB 516, 09/26/2011 the Service reiterated much of the instructions on portability addressed informally in the Instructions for Form 706 for 2011 decedents. The Form 706 Instructions contain detailed instructions for dealing with making the election to allow the surviving spouse to use the predeceased spouse’s unused exclusion amount and for computing the maximum unified credit amount on the death of the surviving spouse.
The instructions for Form 706 state that the executor will be considered to have made the predeceased spouse’s unused exclusion election by filing a “timely and complete Form 706.” There will be no need to check a box on the return. This has again been reaffirmed in Notice 2011-82. The use of the word “complete” in the instructions lead most practitioners to conclude that the Service is looking for a 706 with all the information that would be required in a taxable estate, and that there will be no 706EZ created to use to make this election. Again Notice 2011-82 reaffirms this conclusion. However, it is still unclear whether the Service will be able to defeat the election in the future by claiming that the Form 706 filed by the predeceased spouse’s executor was not complete.
Notice 2011-82 more formally addresses making a portability election. (more…)
The 7520 rate for April 2012 once again stayed level at 1.4%.
The April 2012 Applicable Federal Rates can be found here.
Same-sex marriage is currently permitted in Connecticut, Iowa, Massachusetts, New Hampshire, New York, Vermont, Washington, D.C. and Washington. The individuals who marry in these states have the ability to enjoy state level rights based on their marital status. Rights granted under state law to married couples who divorce are available to same-sex couples who marry. Examples of such rights include spousal maintenance or alimony and equitable distribution of marital property. Similarly, rights granted under state law to married couples upon the death of one of the parties are also available to same-sex couples who marry. Examples of such rights include rights regarding intestate succession (the distribution of a decedent’s property when he or she dies without leaving a valid Will), the right to receive an elective share (many states require a decedent spouse to leave a portion of his or her property to his or her spouse at death) and the right to receive a state estate tax marital deduction.
However the Federal Defense of Marriage Act (DOMA) expressly prevents Federal recognition of same-sex marriages. (more…)
We get asked a lot about two categories of cases: (1) cases about discretionary distributions; and (2) cases about concentrations and diversification. And, it’s easy to understand why – fiduciaries are often given a great amount of discretion in exercising their duties, but then may get sued over it. While there seems to be a growing number of decisions dealing with matters like undue influence and lack of capacity, the numbers of authorities regarding the exercise of discretionary powers and diversification/concentrations are still limited.
That’s why when an opinion like that of the Illinois Court of Appeals in Carter v. Carter comes along, we have to take notice. In this case, the court considered a breach of fiduciary duty claim arising from the trustee’s alleged strategy of investing only in tax-free municipal bonds. The appellate court determined that this strategy did not violate the prudent investor rule or any fiduciary duty owed by the trustee. Let’s see why. . .
Luther Reynolds Carter, Jr. created a living trust that then created a marital trust that went in effect upon Luther’s death. Audrey E. Dressen Carter was Luther’s wife. Audrey was the trustee and sole income beneficiary of the marital trust. Audrey also happened to be the stepmother of Tiffany L. Carter, the sole remainder beneficiary of the trust. Tiffany sued Audrey on the grounds that Audrey’s investment strategy benefited Audrey while damaging Tiffany’s interest in the trust’s principal. (more…)
In 2010 the average cost of a private room in a nursing home in the United States was $6,965 per month or $83,580 annually. Over 40% of those who live past the age of 65 will need nursing home care, a percentage that does not include those who will require additional assistance if they wish to stay in their own homes. Neither Medicare nor most health insurance plans covers long-term care.
The likelihood that you or a loved one will need long-term care, combined with the cost of such arrangements, suggest that you start the conversation now, with a family member, attorney or insurance agent. There are planning options available regardless of age and circumstances. (more…)
A recent Forbes.com article speculates that Whitney Houston’s estate will be worth anywhere between $10 and $20 million, or more. However, throughout her career, Houston has signed $100 million record deals and $10 million movie contracts for her roles in Blockbuster hits such as “The Bodyguard” and “The Preacher’s Wife.” Houston also completed the filming of “Sparkle” which is scheduled to be released in September of this year. Surely, with sound marketing, branding of Houston’s image, and increased record sales, her estate can bring in millions more in the upcoming years. Zach Greenburg, Forbes writer, said although Whitney Houston may not match Michael Jackson’s postmortem earnings, her artist royalties alone could bring the estate more than $10 million in the next year. Here’s an ABC News Article that discusses her estate’s earning potential in more depth.
On Wednesday March 7, 2012, the Fulton County Probate Court in Georgia approved Houston’s Will, signed in 1993. It revealed (more…)