Archive for October, 2010
Posted by William Byrnes on October 29, 2010
A rush of IRS challenges to transactions that provide your clients with a significant tax benefit may be on its way. The IRS has new options for denying tax deductions and other tax benefits when it— at its discretion—believes that a transaction has been entered into solely for a tax reduction and not a valid business purpose.
This IRS`s “new” tool is the recently-codified economic substance doctrine, which was signed into law earlier this month by President Obama as part of the Health Care and Education Affordability Reconciliation Act of 2010. The IRS says that the act codifies only existing case law, but in practice, it gives the service the power to supplant a taxpayer`s business judgment with the service`s judgment of whether a transaction has profit potential, the end result being a denial of the tax benefit of transactions that the IRS judges not to have an economic purpose other than the reduction of taxes.
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
We look forward to your comments on AdvisorFYI.
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Posted in Taxation | Tagged: Barack Obama, Business, Economic substance, Internal Revenue Service, IRS, Obama, tax, United States | Leave a Comment »
Posted by William Byrnes on October 28, 2010
Life insurance is often the cornerstone of an estate plan when a family business is involved. As a follow-up to the article on supporting a surviving second spouse without liquidating the family business, this article describes a technique that introduces a charitable giving component into family business succession planning.
Consider the following scenario:
Your client Jonathan has two primary legacy planning objectives. Foremost is his desire to ensure a smooth transfer of the family business to his daughter, Eva. Jonathan also wants to make a sizeable lifetime gift to his favorite charity and provide a retirement nest egg for his wife.
For prior Advisor’s Journal coverage of family business succession planning using life insurance, see Supporting a Surviving Second Spouse without Liquidating the Family Business (CC 10-53).
See the AUS Main Libraries, Section 9 C2—The Law Of Wills, for a discussion of a spouse’s right to elect against the will.
We invite your questions and comments by posting them at AdvisorFYI or by calling the Panel of Experts.
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Posted in Estate Tax | Tagged: Agents and Marketers, Business, Family business, Financial services, insurance, Life, life insurance, Succession planning | Leave a Comment »
Posted by William Byrnes on October 27, 2010
A disclaimer in the estate planning context is a voluntary refusal to accept a gift from a will. A properly structured disclaimer can be a great tax planning technique, allowing the person making the disclaimer to pass a gift on to the next person in line—for instance, someone in the next generation—without being subject to the gift tax. But a disclaimer should not be made lightly because a disclaimer that is not “qualified” for tax purposes can create serious gift tax consequences for the person making the disclaimer.
The danger of an improperly made disclaimer was clearly illustrated in a recent U.S. District Court, Estate of Tatum v. U.S. There, Son disclaimed his interest in the residue of his father`s estate. But because Son`s disclaimer was not a qualified disclaimer, Son was treated as if he received the gift and then made a taxable gift to his children, resulting in a gift tax bill for Son and his wife of over $1,600,000.
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of qualified disclaimers, see the AUS Main Libraries Section 7 B1—What Transactions Constitute Taxable Gifts
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Posted in Taxation | Tagged: estate planning, Estate tax in the United States, Gift, gift tax, Internal Revenue Service, law, tax, United States | Leave a Comment »
Posted by William Byrnes on October 26, 2010
The federal government is taking the first steps toward regulating financial planners. The Financial Planning Association and other industry groups are welcoming the prospect of federal oversight. The federal push toward regulation is motivated by a perceived widespread misuse of “Financial Planner” and other similar designations.
The Wall Street Reform Act requires the Government Accountability Office to study state and federal regulation of persons who hold themselves out as financial planners. The study will consider whether there are regulatory gaps in federal and state law that permit unregistered financial planners and others who provide planning services to escape regulation. The use of �misleading titles, designations and marketing materials� by financial planners will also be scrutinized to determine whether current law adequately protects consumers.
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Dodd-Frank Wall Street Reform Act in Advisor�s Journal, see Dodd-Frank Wall Street Reform and Consumer Protection Act (CC 10-35), Hedge Fund Must Now Register with the SEC Under the New Wall Street Reform Act (CC 10-45), & The Federal Insurance Office.
We invite your questions and comments by posting them at AdvisorFYI or by calling the Panel of Experts.
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Posted in Uncategorized | Tagged: Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial planner, Financial Planning Association, Government Accountability Office, Hedge fund, Republican, Wall Street, Wall Street reform | Leave a Comment »
Posted by William Byrnes on October 25, 2010
Valuing a donated life insurance policy can be tricky when taking a charitable contribution deduction. Detailed IRS guidance on insurance policy valuation has been confined to other scenarios, such as where a policy is sold or included in an estate. Also complicating policy donation is the requirement that a qualified appraisal of the donated policy be included with the taxpayer’s return.
For in-depth analysis of the topic of charitable giving, see Advisor’s Main Library Section 1 F—Estate Planning Through Charitable Contributions
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
We invite your questions and comments by posting them at AdvisorFYI, or by calling the Panel of Experts.
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Posted in Estate Tax, Insurance | Tagged: Charitable contribution, Donation, insurance, Insurance policy, Internal Revenue Service, life insurance, term life insurance, Whole life insurance | Leave a Comment »
Posted by William Byrnes on October 21, 2010
Why is this Topic Important to Wealth Managers? Discusses the general market conditions of life settlements. Also provides reasons why some policy holders may consider selling their interests.
As discussed earlier this week, a traditional life-settlement transaction consists of an third party purchasing an unknown individual’s life insurance policy for consideration. The purchaser continues to pay the premiums until a death benefit is collected, the contract is sold to another individual or business, or is surrendered.
The Wall Street Journal attributes the creation of the industry “back to the 1980s, when [terminally ill] patients sold their policies to raise cash for medical treatments.” The Journal also notes, the “market boomed earlier this decade, as hedge funds eager for offbeat alternative investments piled in.”
Since the decline in overall macroeconomic market conditions, “the total face value of policies purchased in the secondary market fell to $7 billion in 2009 from $13 billion in 2008”. “Prices for policies, meanwhile, fell to an average of 13% of the death benefit in 2009 from 21% in 2006.” Nevertheless, industry experts are expecting a rise again in total market figures by the end of 2010. It is not surprising given the SEC’s new enforcement efforts discussed below.
For the remainder of the article see AdvisorFYI.
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Posted in Insurance | Tagged: Alternative investment, Business, Financial services, Hedge fund, insurance, Insurance policy, Life settlement, Secondary market | Leave a Comment »
Posted by William Byrnes on October 20, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts owned by a third party transferee, including the payment of death benefits as well as sale or exchange gain treatment.
Today’s blogticle will discuss taxation of life insurance contracts from the purchaser’s prospective.
As discussed yesterday, an insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered or sold to a third party. This blogticle deals in particular with payment of the face value to the third party caused by the death of the insured as well as another sale or exchange of the contract by the third party.
What are the tax implications if the third party collects the death benefits? What are the tax implications if the policy is sold to a third party?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless otherwise excluded by law). Gross income specifically excludes amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured. For the complete article see AdvisorFYI….
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Posted in Insurance, Taxation, Uncategorized | Tagged: Agents and Marketers, Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax | Leave a Comment »
Posted by William Byrnes on October 19, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts that are surrendered, sold or exchanged. Gives examples that are easy to follow and provides an educational foundation for real-world gain determinations.
This is a two-part series in relation to the taxation of life insurance contracts once it is surrendered, sold or exchanged to a third party. The first blogticle will examine the issue from the seller or insured’s perspective, and tomorrow’s blogticle will discuss the matter from the purchaser’s prospective.
An insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered, or sold to a third party. This blogticle deals in particular with the sale or exchange of the contract, i.e., surrendered or sold.
What are the tax implications if the life policy is surrendered?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless the income is otherwise excluded by law). [1]
In general, a life insurance contract that is not collected as an annuity is included in gross income in the amount received over the total premiums or consideration paid. [2] “The surrender of a life insurance contract does not, however, produce a capital gain.” [3] The amount collected over basis is therefore ordinary income.
To read the remainder of this article please see AdvisorFYI.
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Posted in Insurance, Taxation | Tagged: Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax, United States | Leave a Comment »
Posted by William Byrnes on October 18, 2010
Life insurance-based estate planning strategies for high-net-worth clients with estate liquidity issues run into the problem that premiums may be so high as to exhaust the client’s annual gift tax exclusion and lifetime exemption, resulting in unwanted gift tax exposure. One way advanced planners have dealt with the gift tax problem of high premiums is through the use of a grantor retained annuity trust (GRAT). But the U.S. House recently passed a bill—H.R.4849, the Small Business and Infrastructure Jobs Tax Act of 2010—that would severely curtail the use of GRATs, so the utility of this technique may soon be eliminated.
To illustrate this technique while it remains open, let’s assume you have an unmarried client, Max, who owns a number of restaurant franchises. His estate will be worth about $12 million, most of which is tied up in his franchises and other illiquid investments. Max’s estate will need around $6 million in liquid death benefit to cover the pending estate tax liability. Read today’s article in your Advisor’s Journal at GRAT Strategy (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of the topic of the use of GRATs, see Advisor’s Main Library Section 4. Estate Planning Techniques J—Grantor Retained Annuity Trusts
We invite your questions and comments by posting them below, or by calling the Panel of Experts.
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Posted in Estate Tax, Taxation, Wealth Management | Tagged: Charitable organization, estate planning, gift tax, Grantor Retained Annuity Trust, Inheritance tax, law, Small business, United States | Leave a Comment »
Posted by William Byrnes on October 18, 2010
Why is this Topic Important to Wealth Managers? Discuses one alternative investment wealth managers are continuing to explore in consideration of uncertain tax law changes. Provides general background as well as analysis and comparison to show the benefits available through the purchase of tax-exempt bonds.
Interest received from bonds is generally taxed at ordinary income rates. This includes both government and corporate bonds unless otherwise excluded by the tax code. Dividends though are taxed at capital gains rates, which for the meanwhile can provide significant tax benefits. See our previous AdvisorFYI blogticle of September 13th Bush Tax Cuts Set to Expire.
However, some state and local municipal bonds often called “muni” bonds, produce tax—exempt interest income under Internal Revenue Code § 103. The general obligation interest on state or local bonds fall into this category as distinguished from private activity bonds.
A detailed discussion of private activity bonds in comparison to general obligation bonds can be found at AdvisorFX Tax Facts: Q 1123. Is interest on obligations issued by state and local governments taxable? (sign up for a free trial subscription if you are not a subscriber).
To read the remainder of this blogticle that deals with general obligation bonds, and offers a comparison between tax-exempt and taxable income bonds with illustrated rates of return, please see AdvisorFYI –
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Posted in Tax Exempt Orgs, Tax Policy, Taxation | Tagged: Bonds, Business, Corporate bond, Internal Revenue Code, Municipal bond, Rate of return, tax, Tax exemption | Leave a Comment »
Posted by William Byrnes on October 16, 2010
Why is this Topic Important to Wealth Managers? Provides critical information in regards to who will be the subjects of new reports going to the IRS beginning in January. Chances are, a significant portion of clients accept credit and debit cards in transactional exchanges. The new law applies, and has ramifications, directly related to these merchants and services providers.
The same legislation that brought us the first time homebuyer’s credit, the “Housing Assistance Tax Act of 2008”, is back again, this time in the form of additional reporting for those who accept credit or debit cards in consideration for goods or services. [1] The act requires return reporting to the Internal Revenue Service, “relating to payments made in settlement of payment card and third party network transactions.” [2]
The requirements establish that “banks or other organizations that have contractual obligation to make payment to participating payees in settlement of payment card transactions” [3], are required to return to the Service, “(1) the name, address, and [Taxpayer Identification Number] of each participating payee to whom one or more payments in settlement of reportable payment transactions are made, and (2) the gross amount of the reportable payment transactions with respect to each such participating payee.” [4]
Read all about the new requirements that become effective for information returns for reportable payment transactions for calendar years beginning after December 31, 2010 at Special Alert
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Posted in Taxation | Tagged: Business, Business and Economy, Credit, Debit card, Financial services, Internal Revenue Service, Merchant Services, Payment | Leave a Comment »
Posted by William Byrnes on October 15, 2010
Many clients with employer-provided retirement accounts can now convert their accounts to Roth accounts thanks to the Small Business Jobs and Credit Act of 2010, H.R. 5297—which was signed into law by President Obama on Monday, September 27. The Act allows 401(k), 403(b), and governmental 457(b)participants to roll all, or a portion, of their account balances into an employer-provided Roth account. Converting from a traditional to a Roth account can have substantial tax benefits for your clients. But because of the complexity of the decision whether to convert, most clients will need their advisor’s assistance when deciding whether to convert their accounts.
For an analysis of the impact of the extension of the Roth Conversion Window, see Advisor’s Journal Small Business Bill Extends the Roth Conversion Window.
For previous coverage in Advisor’s Journal, see Liberalized IRA to Roth IRA Conversion Rules in 2010
For in-depth analysis of the topic of Roth IRAs, see Advisor’s Main Library Section 17.1 IRAs, SEPs and Simple Plans G—Roth IRAs
We invite your questions and comments by posting them in our blog AdvisorFYI, or by calling the Panel of Experts.
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Posted in Taxation, Wealth Management | Tagged: 401(k), 403(b), Barack Obama, Home, Individual Retirement Account, Personal Finance, Retirement, Roth IRA | 1 Comment »
Posted by William Byrnes on October 14, 2010
By Associate Dean William H. Byrnes, IV and Professor Hannah Bible of the of the International Tax and Financial Services Graduate Program of Thomas Jefferson School of Law
I. CAN I GET A 1099 WITH THAT?
On January 1, 2012 Mr. Irk pulls up to his local McDonalds drive thru in his new hydro car, being the general public conscious man he is.
Id like a Big Mac, a small order of fries, and a signed 1099 Form on the side please. With speaker hiss overshadowing, a voice responds, OK thats a Big Mac, a small fry, and a fried small apple pie. No, Mr. Irk responds, a signed 1099 form. Again barely understandable over the hiss of the speaker, eh, so you want four fried small apple pies? Mr. Irk, living up to his namesake, responds no no, not four, form.
Sir, I aint got no idea what you talkin bout. Clearly the local McDonalds counsel did not advise his client on the most recent changes in tax law.
Unless the Treasury takes great prerogative and creativity in the writing of regulations applicable to the recent Amendments set out in I.R.C. 6041, throughout 2011 attorneys and consultants should be preparing clients on how to comply with the new reporting requirements.
Starting in 2012 all gross proceeds, in addition to the previously required gains, profits, and income currently required to be reported, will need to be reported to the Internal Revenue Service (IRS) on Form 1099-MISC (or an applicable 1099 form within the 1099 series) from any amount received in consideration of …. Thus, starting January 1, sales of tangible goods will now require reporting by the purchaser.
Please read this 10 page detailed analysis of how to advise your clients and practice advice at Mertens Developments & Highlights via your Westlaw subscription (<– click there) or order via Thomson-West (<– click there).
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Posted in Taxation | Tagged: 1099, Big Mac, Business, Internal Revenue Service, IRS tax forms, McDonalds, Politics, tax, United States, W9 | Leave a Comment »
Posted by William Byrnes on October 13, 2010
This month, the Congressional Research Service released an overview of qualified tuitions programs, giving us an opportunity to revisit the tax-advantaged nature of these accounts for higher education.
The primary advantage of qualified tuition programs—typically referred to as 529 plans—is the tax savings they provide. Although there is no federal income tax deduction for contributions to a 529 plan, accounts appreciate federal income tax free and distributions can be taken tax free to pay qualified higher education expenses (QHEE). In addition to federal tax benefits, a partial to full state income tax deduction for plan contributions is offered by twenty-six states. But because 529 plan accounts are intended to be used to pay higher education expenses, distributions of account appreciation that are not used to pay QHEE are subject to a penalty that varies from state to state.
For an analysis of Pre-Paid Tuition Plans, College Savings Plans, pointing out your role as the trusted advisor, see our article in AdvisorFX Advisor’s Journal.
For in-depth analysis of the topic of education savings accounts, see Advisor’s Main Library Section 50.1 Planning For Education Costs
From a tax perspective see Tax Facts Q 810. What is an Education Savings Account?
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Posted in Taxation, Wealth Management | Tagged: 529 plan, Congressional Research Service, Coverdell Education Savings Account, Higher education, tax, Tax advantage, Tax deduction, United States | Leave a Comment »
Posted by William Byrnes on October 12, 2010
Why is this Topic Important to Wealth Managers? Provides specific information in regards to costs relating to the formation of an insurance company. Discusses multiple domicile options and how they relate to each other.
Wealth managers may be interested to know generally what costs are involved to form and manage a captive insurance company in different jurisdictions. Take for example Vermont. It is known as the “Captive Capital” here in the States, and for good reason, Vermont has licensed over 900 captives at last count.[1]
The licensing fees in Vermont total $4,800 (in the first year and only $300 a year thereafter.) [2] However, there are a couple of downsides to the preliminarily greener pastures. First, Vermont requires initial capitalization of a “pure”, which includes a traditional single parent, captive of $250,000. [3] Secondly, Vermont requires the captive to pay minimum premium tax of $7,500 which has an underwriting level of approximately around $2 million dollars at a rate of 0.38%. [4]
As a general rule, the formation and annual expenses, including premium taxes, of captive insurance companies will be lower in most offshore jurisdictions rather than domestic domiciles.
Read on about A Dollar Saved…Captive Insurance Company Costs
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Posted in Insurance | Tagged: Business, Captive insurance, Captives, Financial services, insurance, risk management, United States, Vermont | Leave a Comment »
Posted by William Byrnes on October 11, 2010
Why is this Topic Important to Wealth Managers? Provides insight into relevant taxation issues regarding the ownership of a foreign insurance company, premium payments made to a foreign insurance company, and foreign insurance company income taxation. Discusses information wealth managers may find relevant in regards to advanced family and business estate plans.
What are the U.S. tax implications, generally, for a United States Corporation that owns a foreign insurance company?
To begin, a well known rule is that premiums paid to a foreign insurance company are subject to a federal income premium tax. The tax is due even though the U.S. parent may own the foreign insurance company, either in part or in full. The tax is remitted by the premium payor who “must file Form 720 to pay the tax at the time of the premium payment.”[1]
For casualty insurance policies the tax is 4% of the total premium payment to a foreign insurer and for life insurance and annuity contracts the tax is 1% of the premium paid.[2] The tax only applies to premium payments to a foreign insurer.
If a foreign company carrying on an insurance business within the United States qualifies as a life or casualty insurer under the Code, “if it were [otherwise] a domestic corporation,” then the company is “taxable under such part on its income effectively connected with its conduct of any trade or business within the United States.” [3]
To determine what income then is effectively connected with a trade or business within the United States, one must know what a trade or business within the United States means. “Neither the Code nor the regulations fully define the term ‘trade or business within the United States.’ ” [4] Most “cases hold that profit oriented activities in the United States, whether carried on by the taxpayer directly or through agents, are a trade or business if they are regular, substantial, and continuous.” [5] Additionally, an insurance company “makes contracts over a period of years”, which leads one to believe the issuance of insurance contracts on persons or activities in the United States is continuous. [6]
Read on about Foreign Insurance Company Taxation
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Posted in Insurance, Tax Policy, Taxation | Tagged: Agent Resources, Business, Business and Economy, Carriers, Financial services, insurance, Property and Casualty, United States | Leave a Comment »
Posted by William Byrnes on October 9, 2010
Why is this Topic Important to Wealth Managers? Presents an introduction into the taxation of U.S. life insurance companies. Provides insight for wealth managers considering advanced planning techniques involving the use of life insurance companies.
Congress has determined, generally, that insurance companies by issuing insurance contracts are serving the public good. Moreover, Congress has determined that the tax accounting applicable to corporations does not adequately align to the operations of the insurance industry. Thus, to distinguish insurance companies, Congress created a special chapter of the Internal Revenue Code (subchapter “L”) applicable only for them. Subchapter L is divided into Section 801 to 848 of which 801 to 818 address the taxation of lile insurance companies.
By example, because of the nature of the life insurance business, in that liabilities carry long into the future, Congress has afforded special deductions to this class. To avoid potential reserve deficiencies by recognizing income (and therefore incurring a present tax liability) when premiums are collected, Congress essentially allows underwriting gains to occur once the insurance liability obligations have expired.
Let’s take a look at the Code specifically to see how these mechanics actually work. First and foremost, pursuant to IRC Sec. 801 a life insurance company is taxed at the same rates as other corporations. These rates can be found in IRC § 11.
A life insurance company means under IRC § 816(a), “ an insurance company which is engaged in the business of issuing life insurance and annuity contracts”, generally, as well as accident or health contracts, so long as, the company’s “life insurance reserves, plus unearned premiums” on “noncancellable” policies, “comprise more than 50 percent of its total reserves.”
Read on about Subchapter L: Life Insurance Companies
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Posted in Tax Policy | Tagged: Agents and Marketers, Business, Business and Economy, Financial services, insurance, Internal Revenue Code, Life, life insurance | Leave a Comment »
Posted by William Byrnes on October 8, 2010
Why is this Topic Important to Wealth Managers? Provides an introduction into the Internal Revenue Code so that tomorrow’s blogticle about specific sections of the Code may be better understood, in particular the taxation of life insurance companies.
How are the laws related to tax organized or in other words, what’s the general process in finding an answer to a tax question?
All federal laws of the United States arise out of the Constitution. The Constitution has granted Congress certain enumerated powers, such as the power to regulate commerce among the several states. Congress also has the power to create laws that are necessary and proper in governing based on its listed powers. All powers not granted to the Federal government are reserved by the States through the 10th Amendment – meaning only the States may enact laws in those areas (al least this is how it is supposed to work).
Once Congress passes a necessary and proper law to carry out its enumerated powers, that law becomes a United States Statute, or a Statute already existing is either amended or deleted. The Statutes of the United States are called the United States “Code”.
The United States Code is divided into 50 different titles. Title 26 is perhaps the most infamous, being the “Internal Revenue Code”. The Internal Revenue Code, or Title 26 of the United States Code is further delineated, into Subtitles, Chapters, Subchapters, Parts, and finally Sections and Subsections.
Congress has delegated the power of enforcement of these laws, which lies with the executive branch, of Title 26 to the Secretary of Treasury to create Regulations or Administrative Interpretations of the Statutes. The regulations are not in and of themselves laws but rather, direction from the Secretary of interpretation of the laws. The regulations have legal authority, which means they may be presented in court. In almost all tax cases, there is some Statute, that is called into question, therefore the Court’s exclusive job is to rule on interpretation of the Statute as it applies to the situation before the court, not to overrule any statute, unless it found the law unconstitutional. Therefore, additional law is generated by courts’ interpreting Statutes. This is known as “case law”.
Read on about the The Internal Revenue Code: Decoded
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Posted in Tax Policy | Tagged: Federal government of the United States, Internal Revenue Code, law, Statute, United States, United States Code, United States Congress, United States Constitution | Leave a Comment »
Posted by William Byrnes on October 5, 2010
Why is this Topic Important to Wealth Managers? Discusses how international planning can impact clients’ tax position domestically. Provides discussion on a number of common international tax concepts as they relate to U.S. taxpayers.
In previous blog this week, it has been briefly discussed that there may be a number of reasons a client may consider offshore planning, generally. Today we will focus on one major component of offshore considerations, the impact of world-wide income on U.S. taxpayers. It is generally accepted that U.S. taxpayers are expected to pay income taxes on income earned from sources worldwide. This concept is commonly referred to as “outbound” taxation.
It is the case that many sovereign nations will also have taxes on personal and/or corporate income that an individual or corporation could become subject to, creating in effect “double taxation.” And some foreign nations choose to have very low or no tax rate on certain types of income, or on corporations in general, thus allowing foreign income to potentially escape foreign taxation (and current U.S. taxation in the year that it is earned).
What are some rules that that Congress has attempted to avoid double taxation or subject foreign income to U.S. taxation?
Check out the full blogticle at AdvisorFYI.
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Posted in Uncategorized | Tagged: Congress, Corporation, income tax, law, tax, Taxation, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on October 4, 2010
Valuation discounts are increasingly challenged by the IRS. Gone are the days when assets could be dropped into a family limited partnership with some transfer restrictions and forgotten about until a valuation discount was needed to reduce a gift or estate tax bill. A recent U.S. District Court case, Fisher v. U.S., reminds us that times have changed. Often, placing assets in a business entity is no longer enough to justify a valuation discount—the entity must be run like a business to justify the discount. Read the analysis by our experts Robert Bloink and William Byrnes located at AdvisorFX Journal Valuation Discounts: Only for a Bona Fide Business
For some good news about valuation discounts, see our article in AdvisorFX Advisor’s Journal on the Jensen case.
From a tax perspective see Tax Facts Q 613. How is a closely held business interest valued for federal estate tax purposes?
After reading the analysis, we invite your questions and comments by posting them below, or by calling the Panel of Experts.
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Posted in Estate Tax | Tagged: Business, Estate tax in the United States, Internal Revenue Service, law, Services, tax, United States, valuation | Leave a Comment »
Posted by William Byrnes on October 3, 2010
An insurer recently won a major victory when the U.S. District Court for Delaware voided a life insurance policy that was purchased as part of a STOLI transaction. The case—Principal Life Insurance Co. v. Lawrence Rucker 2007 Insurance Trust—is significant because the court voided the policy for lack of an insurable interest based on the finding of insured’s intent to sell, even though the insured had not identified a particular purchaser for the policy at the time it was issued.
For the complete analysis of this development by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription atRecent STOLI Case Is a Big Win for Insurers
For in-depth analysis of STOLIs, see Advisor’s Main Library Section 19.6 Life Settlements B—The Life Settlement Industry: Stranger-Originated Life Insurance (STOLI).
For in-depth analysis of the topic of insurable interest, see Advisor’s Main Library Section 20 Beneficiaries And Settlement Options B—Insurable Interest: New York Insurance Department Invalidates STOLI Scheme For Lack of Insurable Interest
After reading the analysis, we invite your questions and comments by posting them below, or by calling the Panel of Experts.
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Posted in Uncategorized | Tagged: Business, Financial services, insurance, Insurance policy, Life, life insurance, Life settlement, Stranger-originated life insurance | Leave a Comment »
Posted by William Byrnes on October 2, 2010
Author: Benjamin S. Terner
Why is this Topic Important to Wealth Managers? Provides an overview of one useful tool for affluent clients. Presents offshore private placement life insurance considerations wealth managers may consider when discussing this topic with clients.
As a brief review, private placement variable universal life insurance may allow individuals “the ability to select asset management beyond the limited asset-management choices offered in retail variable life insurance products.”
Generally speaking, one benefit derived from the use of private placement policies “in the high-net-worth market” is that the policy is essentially an “investment vehicle, optimally used for the most tax-inefficient asset classes in an investor’s portfolio.” Therefore, some common goals for wealth managers structuring transactions as private placement life contracts: “are to take advantage of the income tax and possible estate tax savings, to maximize investment choices, and to incur as little cost as possible in doing so.”
Please see the AdvisorFYI blog for the entire blogticle.
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Posted in Insurance | Tagged: Asset, Business, Financial services, insurance, Investment, life insurance, Private placement, Private placement life insurance | Leave a Comment »
Posted by William Byrnes on October 1, 2010
The tax landscape is changing for the amount U.S. multinational corporations may claim through the foreign tax credit. This change is the result of the Statutory Pay-As-You-Go Act of 2010 that requires any increased spending must be offset by a corresponding increase in revenue. The foreign tax credit modifications narrowly escaped becoming the offsetting revenue raising provisions of the Unemployment Compensation Extension Act of 2010 that extended unemployment benefits. However, the success was short-lived, as these modifications were added to Pub. L. No. 111-226, the Education, Jobs and Medicaid Assistance Act of 2010. This legislation provides $10 billion of elementary and secondary education funding to protect teacher jobs from being cut. Nearly $10 billion over ten years is expected to be raised by altering various rules that corporations leverage to calculate their foreign tax credits and foreign-source income, providing the necessary revenue offset for this law.
In the article, we will examine the concept behind foreign tax credits offered in the United States; the history of foreign tax credits in the United States; the changes to the foreign tax credits; and the public policy behind the bill and the potential effects upon multinational corporations. To download the free article, please link to LexisNexis here at Tax Law Community
You may post any questions or comments below – Prof. William Byrnes
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Posted in Tax Policy | Tagged: education, law, Low Income Taxpayers, Multinational corporation, tax, Tax credit, Taxation, United States | Leave a Comment »
Posted by William Byrnes on October 1, 2010
A recent IRS Chief Counsel Advice addressed the importance of making adequate disclosures to the IRS when filing a gift tax return, demonstrating the dangers of a tight lip. There, a taxpayer failed to disclose the method and valuation discounts used to value gifted stock. As a result, the taxpayer was unable to seek the protection from gift tax changes based upon the three year statute of limitations.
The statute of limitations for the IRS to question an item on a gift tax return is essentially unlimited if a gift is not “adequately disclosed” on the return, so taxes—and fees and interest—can be imposed on the inadequately disclosed gift any time after the return is filed.
For the complete analysis of this development regarding the disclosures required on a gift tax return by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription at Gift Tax Return Disclosures—Adequate or Else?
For in-depth analysis of this topic, see Advisor’s Main Library Section 7. Gift Taxes D—Valuation For Gift Tax Purposes and from a tax perspective see Tax Facts Q 1534 What are the requirements for filing the gift tax return and paying the tax?
After reading the analysis, we invite your questions and comments by posting them below, or by calling the Panel of Experts.
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Posted in Estate Tax | Tagged: accounting, Business, gift tax, Internal Revenue Service, tax, Tax Negotiation and Representation, Taxation, United States | Leave a Comment »
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