Posted by William Byrnes on March 26, 2011
Why is this Topic Important to Wealth Managers? Increasing the IRS staffing budget in certain departments may be indicative of increasing scrutiny of client’s information and tax returns. Increasing government scrutiny may lead to increased compliance costs in time and fees. Consequently, a wealth manager may want to address with client the need for increasing diligence in preparation of their affairs. Thus, Advanced Market Intelligence presents a discussion on the Internal Revenue Services’ allocations for fiscal year 2012, and contrasts 2010 data and figures.
The fiscal year 2012 proposed budget allocates $14 billion to the Department of the Treasury; a 4 percent increase above the 2010 enacted level. [1] The increase over 2010 levels is attributed to costs associated with implementation of legislation and new investments in IRS tax compliance activities that are aimed to help reduce the deficit. Of the $14 billion appropriated to the Treasury operations, over $13.28 billion is encumbered for the Internal Revenue Service.[2]
The Internal Revenue Service has allocated its appropriations to the tune of $2.345 billion for “Taxpayer Services”; $5. 96 billion for “Enforcement” of which over $5 billion is apportioned to “Exam and Collections”; “Operations and Support” represent $4.62 billion; and “Business Systems Modernization” together with “Health Insurance Tax Credit Administration” represent approximately $351 million. [3]
The main function of the Internal Revenue Service is to collect he revenue that funds the government and administer the nation’s tax laws. [4] The IRS collected $2.345 trillion in taxes (gross receipts before tax refunds) in 2010, or 93 percent of all federal government receipts.
Total resources to support the IRS activities for fiscal year 2012 are estimated to be around $13.626 billion, including $13.283 billion from direct appropriations, an estimated $138 million from reimbursable programs, and an estimated $204 million user fees. The direct federal budget appropriation is $1,137,784,000, 9.37 percent, more than the fiscal year 2010 enacted level of $12,146,123,000. [5]
The 2012 budget provides funding to implement enacted legislation; handle new information reporting requirements; increase compliance by addressing offshore tax evasion; expand enforcement efforts on noncompliance among corporate and high-wealth taxpayers; and enforce return preparer compliance.
The IRS estimates new enforcement personnel will generate more than $1.3 billion in additional annual enforcement revenue once the new hires reach full potential in fiscal year 2014.
Even the Department of the Treasury notes, the tax law is complex and that even sophisticated taxpayers can make honest mistakes on their tax returns. To this end, the IRS states that it remains committed to a balanced program of assisting taxpayers to both understand the tax law and remit the proper amount of tax.
In fiscal year 2010, revenue from all enforcement sources at the IRS reached $57.6 billion, 18 percent more than in 2009. The significant increase was attributable in part to: Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Budget, Business, Douglas Shulman, Fiscal year, Internal Revenue Service, Republicans, tax, United States Department of the Treasury | 1 Comment »
Posted by William Byrnes on March 25, 2011
Firms Selling Private Placements Face Increased Scrutiny
If you’re selling Reg D private placements or non-traded REITs, the proverbial Huns are on the hill. These illiquid, private investments are the top two items on FINRA’s (“Financial Regulatory Authority Inc.”) list of enforcement priorities. FINRA is particularly interested in whether firms selling the investments are complying with “suitability, supervision and advertising rules,” and is also looking at cases of fraud and the unregistered sale of the securities.
Medical Capital Holdings Inc. and Provident Royalties, LLC.—both of which offerings brought in hundreds of millions of dollars through private placements sold by broker-dealers—were given as examples of private placements done wrong. Both were charged with fraud in 2009. At least 12 broker-dealers who sold Provident Royalties to their customers are now defunct as a result of the millions of dollars in arbitration claims and lawsuits related to the offering. Read this complete analysis of the impact 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 FINRA regulatory action in Advisor’s Journal, see Broker Bonus Arbitration Bottleneck Forces FINRA to Reconsider Arbitrator Qualification Standards (CC 11-08), SEC Approves FINRA Suitability and Know-Your-Customer Rules (CC 11-17), and New FINRA Rule Restricts Brokers’ Outside Business Activities (CC 10-110).
For in-depth analysis of the taxation of REITs, see Advisor’s Main Library: D—REITs and Limited Partnerships.
Posted in Compliance | Leave a Comment »
Posted by William Byrnes on March 24, 2011
In a recent case, the IRS denied an estate a fractional interest discount on the family ranch, resulting in a seven digit tax bill and the likely liquidation of the family homestead. The father had numerous options for securing a valuation discount on, or excluding the value of, a significant tract of property from his gross estate, but hadn’t done any planning since 1965, resulting in total denial of a discount. When he died in 2004, the property was worth $6,390,000. Don’t let this be your client.
The dispute between the IRS and the father’s estate centered on whether the property’s value in the gross estate was: (1) the undiscounted value of a fee simple interest in the property or (2) the aggregated value of the children’s fractional interests in the property—valued separately with fractional interest discounts. Read this complete analysis of the impact 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 valuation discounts in Advisor’s Journal, see IRS Rebuffed by Federal Court of Appeals in Valuation Discount Case (CC 11-21) and Valuation Discounts: Only for a Bona Fide Business (CC 10-60).
For in-depth analysis of valuation discounts, see Advisor’s Main Library: A—Family Limited Partnerships and Estate & Gift Tax Valuation Discounting.
Posted in Estate Tax | Tagged: Business, Internal Revenue Service, IRS, law, Property, TurboTax, United States, Valuation (finance) | Leave a Comment »
Posted by William Byrnes on March 23, 2011
Why is this Topic Important to Wealth Managers? A producer should be able to present a perspective of the potential impact of current budget proposals upon investments that will be realized in the future. Thus, Advanced Market Intelligence discusses certain features to the proposed federal budget that impact fiscal year 2012.
The President’s new budget proposal included many revenue raising measures. However, below are two areas affecting the tax code that will actually increase the deficit, and also have a strong likelihood to have an impact on clients’ decisions made today.
Currently, the maximum rate of tax on the qualified dividends and net long-term capital gains of an individual is 15 percent. [1] In addition, any qualified dividends and capital gains that would otherwise be taxed at a 10- or 15-percent ordinary income tax rate are taxed at a zero percent rate.
The zero- and 15-percent rates for qualified dividends and capital gains are scheduled to expire for taxable years beginning after December 31, 2012. [2] In 2013, the maximum income tax rate on capital gains would increase to 20 percent (18 percent for assets purchased after December 31, 2000 and held longer than five years), while all dividends would be taxed at ordinary tax rates of up to 39.6 percent.
Taxing qualified dividends at the same low rate as capital gains for all taxpayers is said to reduce the tax bias against equity investment and promote a more efficient allocation of capital. Eliminating the special 18-percent rate on gains from assets held for more than five years is thought to further simplify the tax code. Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Alternative Minimum Tax, Capital gain, Dividend, Fiscal year, Qualified dividend, Rate schedule (federal income tax), tax, Tax rate | Leave a Comment »
Posted by William Byrnes on March 22, 2011
Tax and insurance advisors looking for answers on how the new Tax Relief Act of 2010 will impact their clients are finding them in The National Underwriter Company’s just-published Selected Provisions and Analysis of the Tax Relief Act of 2010. The proprietary analysis is the only practitioners’ guide in Q&A format that answers the most critical questions asked by clients on insurance, estate and gift tax law changes.
Copies of the 64-page report are available for only $12.95 plus shipping and handling here. Producers and their companies can also license use of their logos and contact information directly on the cover of the guide for a marketing and client-management tool.
National Underwriter’s wealth management experts and report authors, Professor William H. Byrnes, Esq., LL.M, CWM and Robert Bloink, Esq., LL.M., noted, “While most media attention has focused on the Act’s retention of existing tax rates on the highest-earning Americans, tax, insurance and investment advisors are finding that the most important changes, from their perspective, are likely to be found in insurance, estate and gift tax provisions that will drive client decisions on investment strategy and wealth management priorities in 2011 and beyond.”
Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, said, “This proprietary analysis – compiled by leading experts in the field – demonstrates National Underwriter’s commitment to bringing timely and critical updates to advisors and financial planners so that they can successfully build their practices and better serve their clients.”
Prof. Byrnes, a former Coopers & Lybrand associate director in international tax and now Dean of the wealth management graduate program at Thomas Jefferson School of Law, noted that the 64-page analysis has answers to more than 100 important questions in these areas:
- Income Tax
- Estate and Gift Tax
- Generation Skipping Transfer Tax
- Deduction for State and Local Sales Taxes
- Alternative Minimum Tax
- Tax Credits
- Payroll Tax Holiday
- Wage Credit for Employees Who Are Active Duty Members of the Military
- Charitable Distributions from Retirement Accounts
- Bonus Depreciation and Section 179 Expensing
- Basis Reporting Requirements for Brokers and Mutual Funds
- Regulated Investment Company Modernization Act of 2010
- Health Care Act
- Form 1099 Reporting Requirement for Businesses
- American Jobs and Closing Tax Loopholes Act of 2010
- Requirements for Tax Return Preparers
“This is the only guide available on the market today that gives financial planners and producers issue-specific, time-critical information in Q&A format that addresses their most important technical questions with content that can also be used directly in client presentations,” Prof. Byrnes added. “The unique combination of The National Underwriter Company’s editorial staff and the resources and professional experience of the wealth management faculty at Thomas Jefferson School of Law provides assurance that these are answers that can be counted on.”
About The National Underwriter Company
For over 110 years, The National Underwriter Company has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions. With respected resources available in print, on CD, and online, National Underwriter remains at the forefront of the evolving insurance industry, delivering the thorough and easy-to-use resources you rely on for success. National Underwriter is a Summit Business Media company.
About Summit Business Media
Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services. Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.
Summit employs nearly 400 employees in ten offices across the United States. For more information, please visitsummitbusinessmedia.com.
Posted in Taxation | Tagged: Employment, income tax, insurance, Summit Business Media, Tax credit, Tax law, Thomas Jefferson School of Law, United States | Leave a Comment »
Posted by William Byrnes on March 22, 2011
Why is this Topic Important to Wealth Managers? Clients will often ask for your “take” on the annual federal budget. It is important to show the client a command of the the facts and figures before addressing the political perspective of spending and revenue. Any producer can “mime” someone else’s perspective. Distinguish yourself with a command of the underlying numbers. Thus, this week Advanced Market Intelligence presents the facts and figures of the proposed federal budget for fiscal year 2012.
The new 2012 Federal Budget was released by the President. Below is a summary of the inflows and outflows concerning next year’s proposed budget (in billions of dollars).
Outlays:
Appropriated (“discretionary”) programs: Security $ 884/Non-security 456; Subtotal—appropriated programs: 1,340
Mandatory programs: Social Security $ 761, Medicare 485, Medicaid 269, Troubled Asset Relief Program (TARP) 13, Other mandatory programs 612; Subtotal, mandatory programs 2,140, Net interest 242, Disaster costs 8
Total outlays 3,819
Receipts:
Individual income taxes $ 1,141, Corporation income taxes 329
Social insurance and retirement receipts: Social Security payroll taxes 659,Medicare payroll taxes 201, Unemployment insurance 57, Other retirement 8, Excise taxes 103, Estate and gift taxes 14, Customs duties 30, Deposits of earnings, Federal Reserve System 66, Other miscellaneous receipts 20
Total receipts 2,627
2012 Deficit $ 1,101
Here are some noted observations of the current budget: Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Barack Obama, Congressional Budget Office, Federal Reserve System, Medicare, Social Security, United States, United States Congress, United States federal budget | Leave a Comment »
Posted by William Byrnes on March 21, 2011
Do small- to medium-sized advisors represent a threat to the systemic integrity of the worldwide financial system? Probably not, but you’d think so based on the flood of advisor regulations flowing out of Washington.
The Dodd-Frank compliance maze expanded again last week as the SEC commissioners voted unanimously to release proposed reporting requirements that will complicate the compliance landscape for many advisors. Although affected advisors are not among the largest advisors overseen by the SEC, they are nevertheless categorized by the Commission as large enough to represent a systemic threat warranting increased SEC attention.
And while the SEC has assured affected advisors that their proprietary trading strategies won’t become part of the public record, recent events like the Wikileaks private banking releases should spook advisors. Read this complete analysis of the impact 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 recent SEC rulemaking activity in Advisor’s Journal, see SEC’s Plain English Requirement Equals Expensive Client Disclosures(CC 10-44) and SEC Approves FINRA Suitability and Know-Your-Customer Rules (CC 11-17).
Posted in Compliance | Tagged: Business, Commodity Futures Trading Commission, Dodd-Frank, Dodd–Frank Wall Street Reform and Consumer Protection Act, Mary Schapiro, U.S. Securities and Exchange Commission, Washington, Wikileaks | Leave a Comment »
Posted by William Byrnes on March 20, 2011
Why is this Topic Important to Wealth Managers? Presents discussion on the national debt and national future financial outlook. A client wants to know what YOU think about Treasury Notes versus other types of government debt, even foreign government debt. An understanding of the annual federal national deficit, and its impact on the federal national debt, will provide you a helpful starting point to educate your client, without providing investment advice.
We thought an introduction to the current economic condition would therefore be appropriate. As of September 30, 2010, the federal debt managed by Bureau of the Public Debt totaled about $13,551 billion primarily for borrowings to fund the federal government’s operations. A Government Accountability Office (GAO) Study recently showed the Federal Debt balances consisted of approximately (1) $9,023 billion as of September 30, 2010, of debt held by the public and (2) $4,528 billion as of September 30, 2010 of intragovernmental debt holdings. [1]
Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits. To finance a cash deficit, the federal government borrows from the public. When a cash surplus occurs, the annual excess funds can then be used to reduce debt held by the public. In other words, annual cash deficits or surpluses generally approximate the annual net change in the amount of federal government borrowing from the public.
Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds, that typically have an obligation to invest their excess annual receipts (including interest earnings) over disbursements in federal securities.
The federal debt has been audited since fiscal year 1997. Over this period, total federal debt has increased by 151 percent. During the last 4 fiscal years, managing the federal debt has been a challenge, as evidenced by the growth of total federal debt by $5,058 billion, or 60 percent, from $8,493 billion as of September 30, 2006, to $13,551 billion as of September 30, 2010.
The increase to the federal debt became particularly acute with the onset of the recession in December 2007. Reduced federal revenues and federal government actions in response to both the financial market crisis and the economic downturn added significantly to the federal government’s borrowing needs. And, due to the persistent effects of the recession, experts believe federal financing needs remain high. As a result, the increases to total federal debt over the past three fiscal years represent the largest dollar increases over a three year period in history. The largest annual dollar increase occurred in fiscal year 2009 when total federal debt increased by $1,887 billion.
During fiscal year 2010, total federal debt increased by $1,653 billion. Of the fiscal year 2010 increase, about $1,471 billion was from the increase in debt held by the public and about $182 billion was from the increase in intragovernmental debt holdings.
During fiscal years 2008, 2009, and 2010, legislation was enacted to raise the statutory debt limit on five different occasions. During this period, the statutory debt limit went from $9,815 billion to its current level of $14,294 billion, an increase of about 46 percent. Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Federal government of the United States, Finance, Fiscal year, Government Accountability Office, Government debt, United States federal budget, United States public debt, United States Treasury security | Leave a Comment »
Posted by William Byrnes on March 19, 2011
You’d better think twice before agreeing to act as trustee for your clients’ trusts, since doing so can cost you far more than the goodwill and fees it generates.
We all know that, depending on the circumstances, a trust, its grantor, or its beneficiaries can be held responsible for tax liability stemming from trust income.
What about its trustee?
Although trustees are not usually personally responsible for a trust’s taxes, a trustee can be stuck with the tax bill if the trustee breaches his or her fiduciary duty to the beneficiaries. A U.S. District Court recently considered a trustee’s liability for GST taxes when the trust’s beneficiaries claimed that the trustee failed to keep them informed of their potential liability for taxes stemming from trust distributions.
The trustees’ mistake in this case could cost them over $1 million. Read the full analysis by linking to AdvisorFX!
Posted in Trusts | Tagged: accounting, Beneficiary, Fiduciary, tax, Taxation, Trust law, Trustee, United States | Leave a Comment »
Posted by William Byrnes on March 18, 2011
Company is an accrual basis fiscal year taxpayer. Company pays severance benefits in its discretion on an ad hoc basis, and vacation benefits pursuant to its established policy.
Historically, Company has paid both severance and vacation pay from its general assets. Due to a decline in the Market over the past few years, Company has paid significant severance and expects to continue to pay additional severance over the next few years. Effective Jan 1, 2009 Company established Trust to pay this anticipated severance and vacation pay. Trust intends to submit an application for recognition of exempt status in 2010. On 1/1/2009 Company contributed over $1,000,000 to the Trust and deducted that amount on its tax return for 2009. Company indicates that beginning in 2010, Company will make payments for vacation and severance and will seek reimbursement from the Trust.
Company computed the amount deducted based on the limitation set forth in the Code.
Company has not provided any information documenting any severance claims incurred in 2009 that it expects to pay in 2010. Company indicates that because the Trust was established “to pay severance that they anticipate they will have to pay over the next few years …”, and because the amount deducted is within the limit set forth in the Code that the deduction is proper. Read the analysis at AdvisorFYI
Posted in Retirement Planning, Taxation | Tagged: Employment, Fiscal year, Internal Revenue Service, IRS tax forms, Severance package, tax, Tax deduction, TurboTax | Leave a Comment »
Posted by William Byrnes on March 18, 2011
Dates: Video-conference course starting March 28 ending 10 weeks later in late May
Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.
Lead Professor: Dr. Daan Ribbens (see professors link)
Posted in Courses | Tagged: Above the Law (blog), Advertising, American Express, LexisNexis, United States, Videoconferencing, Westlaw, WIMBA | Leave a Comment »
Posted by William Byrnes on March 17, 2011
The Internal Revenue Service announced earlier this week a special voluntary disclosure initiative (the second one of its kind in the past few years). The Internal Revenue Service states the program is designed to bring offshore money back into the U.S. tax system and assist individuals that may have undisclosed income from hidden offshore accounts to pay taxes owed. The new voluntary disclosure initiative will be available through Aug. 31, 2011.
The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. According to the IRS, the first special voluntary disclosure program finished with 15,000 voluntary disclosures on Oct. 15, 2009. Since that time, the Service notes, more than 3,000 taxpayers have come forward to the IRS with bank accounts from around the world.
The new initiative is being called the 2011 Offshore Voluntary Disclosure Initiative, which includes several changes from the 2009 Offshore Voluntary Disclosure Program. The overall penalty structure for 2011 is higher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting. However, the 2011 initiative does have additional features.
For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. However, some taxpayers will be eligible for lower 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.
Read the analysis at AdvisorFYI
Posted in Uncategorized | Tagged: Bank, Bank account, Douglas Shulman, Internal Revenue Service, Offshore bank, tax, UBS, United States | 1 Comment »
Posted by William Byrnes on March 17, 2011
Dates: Video-conference course starting March 28 ending 10 weeks later in late May
Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.
Lead Professor: Dr. Robert J. Munro with guest instructor Joel DiCiccio (see professors link)
Posted in Courses | Tagged: Business, LexisNexis, Library, Thomson Reuters, United States, Videoconferencing, Westlaw, WIMBA | Leave a Comment »
Posted by William Byrnes on March 16, 2011
Merrill Lynch has agreed to pay a $10 million penalty to the Securities and Exchange Commission (SEC) to settle charges that Merrill used information about customer trades to trade on its own behalf—in violation of its customers’ confidences.
According to the SEC, Merrill Lynch operated a proprietary trading desk—its “Equity Strategy Desk” (ESD)—from 2003 to 2005. The desk traded solely on the firm’s account and did not have any responsibility for customer orders.
The SEC says that, although Merrill represented to customers that their trading information would be kept on a need-to-know basis, the ESD had access to and used institutional customers’ information when executing trades on Merrill’s behalf.
The activity that resulted in the SEC investigation is known as “tailgating”—related to the illegal act of “front running.” Front running is the practice of executing proprietary trades using information about pending customer trades to the broker’s advantage. Tailgating is similar to front running, except that the broker executes its own trade after executing the related customer trades.
Read the full analysis at AdvisorFX – sign up for a no obligation free subscription to all the services including AUS, ASRS, the Journal, Presentation Aids, Soft Skills. amongst others.
Posted in Compliance, Wealth Management | Tagged: Bank of America, Business, Customer, Information, Merrill Lynch, Proprietary trading, Trading strategy, U.S. Securities and Exchange Commission | 1 Comment »
Posted by William Byrnes on March 16, 2011
Dates: Video-conference course starting March 28 ending 10 weeks later in late May
Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.
Lead Professor: Stephen Polak with guest instructor Joel DiCiccio (see professors link)
Posted in Courses | Tagged: Certified Fraud Examiner, Erik Engstrom, LexisNexis, Reed Elsevier, United States, Videoconferencing, Westlaw, WIMBA | Leave a Comment »
Posted by William Byrnes on March 15, 2011
According the FCIC report, in the late 90s, AIG leveraged its superior credit rating—its “most valuable asset”—to branch out beyond standard insurance products and become a major over-the-counter derivatives dealer. Through its subsidiary AIG Financial Products, AIG eventually amassed a derivatives portfolio with $2.7 trillion in notional value.
A significant portion of AIG’s derivatives business was devoted to credit default swaps (CDS’s) that “insured” debt held by financial firms and institutional investors. A CDS is a contract under which the party writing the CDS agrees to reimburse the party purchasing protection if there is a default on the underlying debt. In exchange, the party purchasing protection makes a series of payments to the issuer of the CDS—essentially premium payments.
AIG’s credit protection business grew rapidly, swelling from $20 billion in 2002 to $211 billion in 2005 and $533 billion in 2007.
Although insurance policies and CDS’s are similar, crucial differences between the two played a critical role in the crisis. An insurance company is obligated to set aside reserves to balance against potential losses; but a credit default swap, not being an insurance policy, is not subject to a reserve requirement. As a result, AIG was not required to put up collateral when it issued hundreds of billions in CDS’s. What the company did do, however, was promise to post collateral if its credit rating was downgraded.
Read the entire analysis by linking to AdvisorFX ! Sing up for the no obligation free trial – with full access to Advanced Underwriting Service, the Presentation Aids, Soft Skill Tools, Calculators, and Daily Journal.
Posted in Wealth Management | Tagged: AIG, American International Group, Business, Credit default swap, Derivatives, Financial institution, Goldman Sachs, insurance | Leave a Comment »
Posted by William Byrnes on March 15, 2011
Dates: Video-conference course starting March 28 ending 10 weeks later in late May
Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.
Approved for Certified Fraud Examiner (CFE) – Lead Professor: Stephen Polak (see professors link)
Posted in Courses | Tagged: Advertising, Business, LexisNexis, risk management, United States, University of Valencia, Westlaw, WIMBA | Leave a Comment »
Posted by William Byrnes on March 14, 2011
Is a state law trust that is established as an investment trust to hold interests in an LLC, which has the power to vary its investments, classified as an investment trust?
Example:
LLC is organized under the laws of State as a limited liability company and is treated as a partnership for federal tax purposes. LLC will acquire, hold and manage a portfolio of investments. The governing document of LLC permits the managers of LLC to sell assets in the portfolio and acquire new assets.
LLC will issue two classes of interests: common interests and manager interests. Holders of common interests and holders of manager interests have different rights to the income, deductions, credits, losses, and distributions of LLC. Manager interests will be held by a select group of investors who are also responsible for managing LLC. The common interests of LLC will be held by Trust.
Trust is organized under the laws of State as a trust. The governing documents for Trust provide that Trust is only permitted to hold common interests in LLC. Trust will issue trust certificates and each certificate will entitle the holder to all the income, gain, profit, deductions, credits, losses, and distributions associated with one common interest in LLC. The governing documents for Trust indicate that Trust is a trust for federal tax purposes.
First, the Treasury Regulations provide that a “business entity” is an entity recognized for federal tax purposes that is not properly classified as a trust under or otherwise subject to special treatment under the Code. [1]
In addition, an arrangement will be treated as a trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit. [2]
There are arrangements that are known as trusts because legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Code because they are not simply arrangements to protect or conserve the property for the beneficiaries. These trusts, which are often known as business or commercial trusts, generally are created by the beneficiaries simply as a device to carry on a profit making business which normally would have been carried on through business organizations that are classified as corporations or partnerships (business entities) under the Code. [3]
Moreover, an “investment” trust will not be classified as a trust if there is a power under the trust agreement to vary the investments of the certificate holders. [4] An investment trust with a single class of ownership interests, representing undivided beneficial interests in the assets of the trust, will be classified as a trust if there is no power to vary the investments of the certificate holders.
The essential nature of an arrangement, whatever its form, as shown by the objects attained and the manner of their attainment, is what controls the classification of the arrangement as a trust.[5] In determining the character of an arrangement, the managerial powers of all parties to an arrangement will be combined in order to arrive at the full amount of permitted managerial activity and its object. [6]
Going back to our example, to determine whether Trust is an investment trust for tax purposes, it is appropriate to consider the nature and purpose of Trust. Trust is holding the interests in LLC for the purpose of providing investors with the benefits of the managed investments of LLC. These investment activities would result in Trust failing to be classified as a trust if Trust were permitted to engage in those activities directly. Because the nature and purpose of Trust under this arrangement is to vary the investments of the certificate holders, Trust is likely a business entity for federal tax purposes and not an investment trust.
Restated, a state law trust that is established as an investment trust to hold interests in an LLC partnership, that has the power to vary its investments, is generally not classified as a trust for federal tax purposes.
Tomorrow’s blogticle will discuss relevant topics to wealth managers in 2011.
We invite your opinions and comments by posting them below, or by calling the Panel of Experts.
[1] Treasury Regulations § 301.7701-2(a).
[2] Treasury Regulations § 301.7701-4(a).
[3] Treasury Regulations § 301.7701-4(b).
[4] Treasury Regulations § 301.7701-4(c); See also Comm’r v. North American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942).
[5] Morrissey v. Comm’r, 296 U.S. 344 (1935).
[6] See Comm’r v. Chase Nat’l Bank, 122 F. 2d 540 (2d Cir. 1941).
Posted in Wealth Management | Tagged: Business, Investment, Investment trust, law, Limited liability company, Morrissey, Treasury Regulations, United States | Leave a Comment »
Posted by William Byrnes on March 14, 2011
Tax and insurance advisors looking for answers on how the new Tax Relief Act of 2010 will impact their clients are finding them in The National Underwriter Company’s just-published Selected Provisions and Analysis of the Tax Relief Act of 2010. The proprietary analysis is the only practitioners’ guide in Q&A format that answers the most critical questions asked by clients on insurance, estate and gift tax law changes.
Copies of the 64-page book are available for only $12.95 plus shipping and handling here. Producers and their companies can also license use of their logos and contact information directly on the cover of the guide for a marketing and client-management tool.
National Underwriter’s wealth management experts and report authors, Professor William H. Byrnes, Esq., LL.M, CWM and Robert Bloink, Esq., LL.M., noted, “While most media attention has focused on the Act’s retention of existing tax rates on the highest-earning Americans, tax, insurance and investment advisors are finding that the most important changes, from their perspective, are likely to be found in insurance, estate and gift tax provisions that will drive client decisions on investment strategy and wealth management priorities in 2011 and beyond.”
Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, said, “This proprietary analysis – compiled by leading experts in the field – demonstrates National Underwriter’s commitment to bringing timely and critical updates to advisors and financial planners so that they can successfully build their practices and better serve their clients.”
Prof. Byrnes, a former Coopers & Lybrand associate director in international tax and now Dean of the wealth management graduate program at Thomas Jefferson School of Law, noted that the 64-page analysis has answers to more than 100 important questions in these areas:
- Income Tax
- Estate and Gift Tax
- Generation Skipping Transfer Tax
- Deduction for State and Local Sales Taxes
- Alternative Minimum Tax
- Tax Credits
- Payroll Tax Holiday
- Wage Credit for Employees Who Are Active Duty Members of the Military
- Charitable Distributions from Retirement Accounts
- Bonus Depreciation and Section 179 Expensing
- Basis Reporting Requirements for Brokers and Mutual Funds
- Regulated Investment Company Modernization Act of 2010
- Health Care Act
- Form 1099 Reporting Requirement for Businesses
- American Jobs and Closing Tax Loopholes Act of 2010
- Requirements for Tax Return Preparers
“This is the only guide available on the market today that gives financial planners and producers issue-specific, time-critical information in Q&A format that addresses their most important technical questions with content that can also be used directly in client presentations,” Prof. Byrnes added. “The unique combination of The National Underwriter Company’s editorial staff and the resources and professional experience of the wealth management faculty at Thomas Jefferson School of Law provides assurance that these are answers that can be counted on.”
About The National Underwriter Company
For over 110 years, The National Underwriter Company has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions. With respected resources available in print, on CD, and online, National Underwriter remains at the forefront of the evolving insurance industry, delivering the thorough and easy-to-use resources you rely on for success. National Underwriter is a Summit Business Media company.
About Summit Business Media
Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services. Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.
Summit employs nearly 400 employees in ten offices across the United States. For more information, please visitsummitbusinessmedia.com.
Posted in Taxation | Tagged: Employment, income tax, insurance, Summit Business Media, Tax credit, Tax law, Thomas Jefferson School of Law, United States | Leave a Comment »
Posted by William Byrnes on March 14, 2011
Dates: Video-conference course starting March 28 ending 10 weeks later in late May
Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.
Lead Professor Dr. Alfredo Garcia-Prats (University of Valencia, formerly IMF), Lecturers include Knut Olsen on EU Tax Risk Management – Head of Global Tax & Legal for a Nordic-based multinational corporation with responsibility for 80 countries of operation, overseeing over 100 subsidiaries.
Posted in Uncategorized | Tagged: Above the Law (blog), Advertising, American Express, LexisNexis, United States, Videoconferencing, Westlaw, WIMBA | Leave a Comment »
Posted by William Byrnes on March 13, 2011
The SEC has finally released its anxiously awaited study of whether a fiduciary standard of care should be applied to broker-dealers; but, like the study on adviser examinations, the report leaves as many questions as it answers. The fiduciary standard study recommends that brokers be held to the same standard as register investment advisers (RIAs). Although the study doesn’t provide details on how the switch to the fiduciary standard will be implemented, there are hints as to what brokers can expect.
Read this complete analysis of the impact 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 fiduciary standard in Advisor’s Journal, see Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97) and What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40). Comments are welcome below.
Posted in Uncategorized | Tagged: Broker-dealer, Dodd–Frank Wall Street Reform and Consumer Protection Act, Fiduciary, Registered Investment Advisor, Reuters, Securities Industry and Financial Markets Association, Standard of care, U.S. Securities and Exchange Commission | 1 Comment »
Posted by William Byrnes on March 12, 2011
How does the average gambler determine wagering gains and losses for tax purposes?
Mrs. X is a casual gambler. She uses the cash receipts and disbursements method of accounting and files her returns on a calendar year basis. Mrs. X’s gaming practice is to commit only $100 to slot machine play on any visit to a casino. She wagers until she loses the original $100 committed to gambling or until she stops gambling and “cashes out.”
Upon cashing out, there are three possibilities, that she have $100 (the basis of her wagers), less than $100 (a wagering loss), or more than $100 (a wagering gain). She went to a casino to play the slot machines on ten separate occasions throughout the year. On each visit to the casino, she exchanged $100 of cash for $100 in slot machine tokens and used the tokens to gamble. On five occasions, the she lost her entire $100 in tokens before terminating play. On the other five occasions, the she redeemed her remaining tokens for the following amounts of cash: $20, $70, $150, $200 and $300.
Under the Internal Revenue Code, gross income means all income from whatever source derived, which has been determined to include wagering gains. [1]
The Code further allows a deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise. [2] In the case of losses from wagering transactions, losses are allowed only to the extent of gains from such transactions. [3]
In ordinary practice, a wagering “gain” means the amount won in excess of the amount bet (basis). [4] That is, the wagering gain is the total winnings less the amount of the wager. The term wagering “loss” means the amount of the wager (basis) lost.
Generally, gamblers may not carry over excess wagering losses to offset wagering gains in another taxable year or offset non-wagering income. [5] Nor may casual gamblers net their gains and losses from play throughout the year and report only the net amount for the year. [6]
It is accepted that fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. [7]
Under the facts presented above, Mrs. X purchased and subsequently lost $100 worth of tokens on five separate occasions. As a result, the taxpayer sustained $500 of wagering losses. She also sustained losses on two other occasions, when she redeemed tokens in an amount less than the $100 (basis) of tokens originally purchased.
Therefore, on the day the taxpayer redeemed $20 worth of tokens, the taxpayer incurred an $80 wagering loss. On the day the taxpayer redeemed $70 worth of tokens, the taxpayer incurred a $30 wagering loss. On three occasions, the taxpayer redeemed tokens in an amount greater than the $100 of tokens originally purchased. The amount redeemed less the $100 basis of the wager constitutes a wagering gain. [8] On the day the taxpayer redeemed $150 worth of tokens, the taxpayer had a $50 wagering gain. On the day the taxpayer redeemed $200 worth of tokens, the taxpayer had a $100 wagering gain. And on the day the taxpayer redeemed $300 worth of tokens, the taxpayer had a $200 wagering gain.
For the year, the taxpayer had total wagering gains of $350 ($50 + $100 + $200) and total wagering losses of $610, ($500 from losing the entire basis of $100 on five occasions + $80 and $30 from two other occasions). Mrs. X’s wagering losses exceeded her wagering gains for the taxable year by $260 ($610 – $350). She must report the $350 of wagering gains as gross income under IRC § 61. However, under IRC §165(d), she may deduct only $350 of the $610 wagering losses. In this case, the taxpayer may deduct only $350 of her $610 of wagering losses as an itemized deduction. Generally, a casual gambler who takes the standard deduction rather than electing to itemize may not deduct any wagering losses. [9]
[1] IRC Section 61; Rev. Rul. 54-339; Umstead v. Commissioner, T.C. Memo. 1982-573, 44 TCM 1294, 1295 (1982).
[2] IRC Section 165(a).
[3] IRC Section 165(d); Treasury Regulations Section 1.165-10.
[4] See Rev. Rul. 83-103.
[5] Skeeles v. United States, 118 Ct. Cl. 362 (1951), cert. denied, 341 U.S. 948 (1951).
[6] See United States v. Scholl, 166 F.3d 964 (9thCir. 1999).
[7] See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
[8] See Rev. Rul. 83-130.
[9] See Rev. Rul. 54-339.
We invite your opinions and comments by posting them below, or by calling the Panel of Experts.
Posted in Taxation | Tagged: Gambling, Games, Internal Revenue Code, Internal Revenue Service, Itemized deduction, Shopping, Slot machine, tax | Leave a Comment »
Posted by William Byrnes on March 11, 2011
The SEC has finally released its Dodd-Frank mandated study on enhancing registered investment adviser (RIA) examinations, but the study is more a tale of SEC budgetary distress than a concrete plan to improve examinations. Although the study hints at the regulatory framework that is likely to emerge for RIAs in the coming months, it doesn’t conclude with a definitive solution to the problem. Although the study does not conclude with a specific plan for improving adviser examinations, the scope of the RIA examination problem and the funding problems revealed make it clear that change is coming for RIAs—change likely to be paid for by increased user fees.
Read this complete analysis of the impact 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).
Posted in Compliance | Tagged: Dodd-Frank, Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial Industry Regulatory Authority, Registered Investment Advisor, State Examinations Commission, Test (assessment), U.S. Securities and Exchange Commission, United States Congress | Leave a Comment »
Posted by William Byrnes on March 10, 2011
One of the U.S.’s oldest life settlement companies, publically traded Life Partners Holdings, Inc., is being investigated by the SEC for falsifying life span reports used to sell the company’s life settlement products. Falsified life spans can leave investors on the hook for additional premiums over the insureds’ remaining years when insureds outlive the firm’s life-span estimates.
The question for Life Partners Holdings shareholders and customers is whether the Life Partners investigation will go the way of Mutual Benefits Corp, a life settlement company that sold fractional interests in life insurance policies. Mutual Benefits was the subject of a similar SEC investigation concerning falsified life expectancies that ultimately led to the company’s collapse. Could Life Partners be next?
Read this complete analysis of the impact 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).
Posted in Insurance | Tagged: Business, insurance, Insurance policy, Life expectancy, life insurance, Life settlement, U.S. Securities and Exchange Commission, Wall Street Journal | Leave a Comment »
Posted by William Byrnes on March 9, 2011
Last month the National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the need for tax reform as the number one priority in tax administration. The report also examines challenges the IRS is facing in implementing the new health care law. Below is a highlight of some points made in the report: [1]
Tax Reform
“There has been near universal agreement for years that the tax code is broken and needs to be fixed,” Olson said in releasing the report. “Yet no broad-based attempt to reform the tax code has been made. This report documents the burdens the tax code imposes on taxpayers and explores why many taxpayers may nevertheless feel wedded to key aspects of the current system, undermining efforts at reform.”
Analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Health law, Internal Revenue Service, Nina E. Olson, tax, Tax law, Tax reform, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on March 8, 2011
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.
A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.
Read the analysis at AdvisorFYI
Posted in Taxation | Tagged: Business, Business Formation, Corporation, insurance, Limited liability company, Small business, Start Up, United States | Leave a Comment »
Posted by William Byrnes on March 7, 2011
Dates: Video-conference course starting March 28 ending 10 weeks later in late May
Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.
Posted in Courses | Tagged: Continuing education, LexisNexis, transfer pricing, Videoconferencing, Westlaw, WIMBA | Leave a Comment »
Posted by William Byrnes on March 7, 2011
Although supervising the cost of insurance embedded in life insurance premiums has historically been the domain of state insurance commissioners, the U.S. District Court for the Central District of California has intervened in one recent case, ruling on January 19 that Conseco Life Insurance Co. cannot increase the premiums it charges 50,000 of its existing policyholders.
The premium increase was part of a plan by Conseco to reduce its long-term losses. Rather than post reserves, Conseco looked for a way to reduce its future liabilities by $173 million. They targeted two blocks of universal life policies that had lower than expected lapse rates, using a pricing formula that would explode the cost of insurance charged in the policies’ 21st year after issuance. Customers who’d held the affected policies longest would have seen their premiums increase in 2010 or 2011. Read this complete analysis of the impact 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 another carrier lawsuit in Advisor’s Journal, see Carriers Targeted by Suit Over Losses on Madoff Investments (CC 11-06).
For in-depth analysis of the income taxation of life insurance, see Advisor’s Main Library: A—Definition of “Life Insurance” For Income Tax Purposes.
Posted in Insurance | Tagged: Business, Conseco, Financial services, income tax, insurance, life insurance, United States, Universal life insurance | Leave a Comment »
Posted by William Byrnes on March 6, 2011
Valuation discounts will always be a disputed issue between taxpayers and the IRS, but as illustrated by the recently published Ninth Circuit Court of Appeals case, a properly timed gift can still qualify for a discount. The parents contributed cash, securities, and real property to an LLC and then transferred LLC interests to a trust (“the children’s trust”) naming their children as beneficiaries.
The IRS rejected the valuation discount, claiming that the parents did not make a gift of the LLC interests to the trusts as they claimed, but instead made an indirect gift of the assets owned by the LLC. The IRS also argued that, even if the LLC were funded prior to the gifting of the LLC interests to the children, the transaction’s two steps—transfer of assets to the LLC and the gift of the LLC interest to the children’s trust—were really a single transaction, an indirect gift of the assets, under the step transaction doctrine. Read this complete analysis of the impact 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).
Posted in Estate Tax | Tagged: Internal Revenue Service, IRS, Limited liability company, tax, Trust law, United States, United States Court of Appeals for the Ninth Circuit, Valuation (finance) | Leave a Comment »
Posted by William Byrnes on March 5, 2011
President Obama recently targeted corporate tax rates in his State of the Union address. “It makes no sense, and it has to change”. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit. It can be done.”
Here’s why some politicians in Washington are calling for reform:
Although America has one of the highest maximum corporate tax rates throughout industrialized nations, many large corporations pay only a fraction of the maximum rate. In a study by a New York University Professor, the data shows that a great number of public companies are paying around half, or even less, than the maximum corporate rate.
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Barack Obama, Business Roundtable, Corporate tax, New York University, State of the Union address, tax, United States, Washington | Leave a Comment »
Posted by William Byrnes on March 4, 2011
The Congressional Research Service last week released a publication describing the employer healthcare mandate and penalties for large employers under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. Although penalties under the Health Care Act will not be applicable until 2014, the Act brings about a sea of change in the employer’ role in employee health insurance that requires significant present preparation.
Contrary to popular miscomprehensions about the Act, it does not mandate that employers provide their employees with health insurance; however, the Act does incentivize large employers to do so by penalizing them if their employees are not covered to a minimum level by employer-provided health insurance. Read this complete analysis of the impact 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).
Posted in Uncategorized | Tagged: Congressional Research Service, Employment, Health care, Health Care and Education Reconciliation Act of 2010, healthinsurance, insurance, Patient Protection and Affordable Care Act, United States | Leave a Comment »
Posted by William Byrnes on March 3, 2011
Late last year the IRS published proposed regulations regarding the classification for Federal tax purposes a domestic series limited liability company (LLC), a domestic cell company, or a foreign series or cell that conducts an insurance business.
A number of States, such as Delaware, have enacted statutes providing for the creation of entities that may establish series, including limited liability companies (series LLCs). In general, most series LLC statutes provide that a limited liability company may establish separate series.
Although the series LLC generally are not treated as separate entities for State law purposes, the treatment of rights and obligations is similar to separate entities, creating in essence “associated members”. Members’ association with one or more particular series is comparable to direct ownership by the members in such series, in that their rights, duties, and powers with respect to the series are direct and specifically identified. If the conditions enumerated in the relevant statute are satisfied, the debts, liabilities, and obligations of one series generally are enforceable only against the assets of that series and not against assets of other series or of the series LLC.
Read the analysis at AdvisorFYI
Posted in Taxation | Tagged: Business, Delaware, insurance, Internal Revenue Service, IRS, Limited liability company, Small business, United States | Leave a Comment »
Posted by William Byrnes on March 2, 2011
SEP is a written plan that allows a business to make contributions toward executive’s retirement and employees’ retirement without getting involved in a more complex qualified plan.
Under a SEP, the business makes the contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. A SEP-IRA is owned and controlled by the employee, and the business makes contributions to the financial institution where the SEP-IRA is maintained.
SEP-IRAs are set up for, at a minimum, each eligible employee. An eligible employee means an individual who meets all the following requirements: the individual has reached age 21, has worked for the business in at least 3 of the last 5 years, and has received at least $550 in compensation from the business in 2010.
There are three basic steps in setting up a SEP. Read the analysis at AdvisorFYI
Posted in Retirement Planning | Tagged: Business, Employment, Individual Retirement Account, Internal Revenue Service, Pension, Retirement, SEP-IRA, tax | Leave a Comment »
Posted by William Byrnes on March 1, 2011
Wikileaks is set to release confidential Swiss banking documents, and although the scope of information included in the documents isn’t yet clear, the release could pave the way for a new IRS surge against tax evaders. Similar disclosures by bank insiders were at the heart of the Justice Department’s UBS investigation. This most recent leak came from a former senior private banker and chief operating officer of Julius Baer’s Caribbean operation. He’s currently on trial in Switzerland for allegedly leaking client documents in 2005.
… the statute of limitations for criminal tax offenses is generally three years, but there are a number of exceptions that extend the statute to six years, including “willfully attempting to evade or defeat any tax.” Leaked documents from prior to 2002 would reveal activities that would generally fall outside the six-year statute of limitations; however, the six year statute only begins to run on the day the last affirmative act is committed by the defendant, so criminal prosecution of accountholders revealed by the leak may still be viable. Read this complete analysis of the impact 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 IRS’s offshore enforcement efforts in Advisor’s Journal, see Offshore’s Limited Shelf Life (CC 10-47), IRS Proposed FATCA Guidance Expands Offshore Compliance Initiatives (CC 10-52), and IRS Planning New Voluntary Disclosure Program for Offshore Assets (CC 10-118).
Posted in Money Laundering | Tagged: Banking in Switzerland, Caribbean, Julian Assange, Julius Baer Group, Offshore bank, Switzerland, UBS, Wikileaks | Leave a Comment »
Posted by William Byrnes on February 28, 2011
Federal interference in the regulation of the insurance industry could be around the corner, but the states are not going to cede their authority without a fight.
State legislators fear that “important funds and jobs could be lost if Congress authorizes a federal insurance charter and creates a new bureaucracy to regulate insurance.” According to a letter sent by NCOIL (The National Conference of Insurance Legislators) to every member of the 112th Congress, a federal insurance charter could cost states as much as $16 billion in revenue annually—representing lost fees and taxes generated for the states by insurance business. ….
Although the FIO itself is not given regulatory authority by the Wall Street Reform Act, the studies mandated by the Act may signal that the Feds are interested in expanding their reach into the insurance industry. And, it would be naïve to think that the FIO studies will find that federal regulation of insurance companies is absolutely unnecessary—given the role of insurance companies like AIG in the financial crisis. Read this complete analysis of the impact 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 Federal Insurance Office in Advisor’s Journal, see The Federal Insurance Office (CC 10-55).
Posted in Insurance | Tagged: Financial services, insurance, Insurance policy, Regulation, Regulators | Leave a Comment »
Posted by William Byrnes on February 27, 2011
A significant number of Offshore Voluntary Disclosure Practice cases (remember the Swiss Bank Accounts) involve Passive Foreign Investment Company (PFIC) investments. A lack of historical information on the cost basis and holding period of many PFIC investments, the Service notes, may make it difficult for taxpayers to prepare statutory PFIC computations and for the Internal Revenue Service to verify them. As a result, resolution of many Disclosure Practice cases are said to be unduly delayed. Therefore, for purposes of this initiative, the Internal Revenue Service is offering taxpayers an alternative to the statutory PFIC computation that will resolve PFIC issues on a basis that is consistent with the Mark to Market (MTM) methodology authorized in Internal Revenue Code section 1296 but will not require complete reconstruction of historical data.
Posted in Tax Policy | Tagged: Banking in Switzerland, Internal Revenue Service, Investment, Passive Foreign Investment Company, PFIC, tax | Leave a Comment »
Posted by William Byrnes on February 26, 2011
The SEC recently approved FINRA proposed rules—FINRA Rules 2090 and 2011—that amend and consolidate know-your-customer and suitability obligations for broker-dealers and their authorized representatives. The new rules are based on, and replace in-part, similar NYSE and NASD rules. According to FINRA, the amended know-your-customer and suitability rules are intended to protect investors by “promoting fair dealing with customers and ethical sales practices.”
The new rules are effective as of October 7, 2011. For previous coverage of the suitability standard and the debate over the proposed fiduciary standard in Advisor’s Journal, see What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10-40) and Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97).
Under the know-your-customer rule, firms are required to use reasonable diligence respecting the opening and maintenance of every account and to know essential facts about every customer. “Essential facts” are facts required to …. Read this complete analysis of the impact 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).
Posted in Compliance | Tagged: Broker-dealer, Dodd–Frank Wall Street Reform and Consumer Protection Act, Fiduciary, Financial Industry Regulatory Authority, Mary Schapiro, New York Stock Exchange, Registered Investment Advisor, U.S. Securities and Exchange Commission | Leave a Comment »
Posted by William Byrnes on February 25, 2011
The Internal Revenue Code provides an exclusion from income for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. [1] Thus, there are no tax consequences to the individual if the total amount of such policies does not exceed $50,000. However, the imputed cost of coverage in excess of $50,000 must be included in income to the individual, using the IRS Premium Table, [2] and are subject to social security and Medicare taxes.
A taxable fringe benefit arises if coverage exceeds $50,000 and the policy is considered carried directly or indirectly by the employer. A policy is considered carried directly or indirectly by the employer if:
- The employer pays any cost of the life insurance, or
- The employer arranges for the premium payments and the premiums paid by at least one employee subsidize those paid by at least one other employee (known as the “straddle” rule).
A policy that is not considered carried directly or indirectly by the employer has no tax consequences to the employee. Also, because the employees are paying the cost and the employer is not redistributing the cost of the premiums through an insurance system, the employer has no reporting requirements.
Read the analysis at AdvisorFYI
Posted in Insurance | Tagged: Employee benefit, Employment, Federal Insurance Contributions Act tax, insurance, Internal Revenue Service, Policy, tax, term life insurance | Leave a Comment »
Posted by William Byrnes on February 24, 2011
The topic Self-Employment Tax on wages versus distributions has reared its head again – as shown by the recent Federal District Court case involving David E. Watson.
The C.P.A. recently disputed and lost to the Government’s position which recharacterized dividend and loan payments from David E. Watson, P.C. (a Subchapter S corporation) to its sole shareholder and employee, David E. Watson. The IRS assessed additional employment taxes, interest and penalties against Watson for each of tax years in which Watson’s salary was significantly lower than his total distributions.
Read the analysis at AdvisorFYI (sign up for a 2 week online free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Tax Policy | Tagged: Corporation, Internal Revenue Service, IRS tax forms, Self-employment, tax, Taxation, United States, Withholding tax | Leave a Comment »
Posted by William Byrnes on February 23, 2011
Despite Congress’s best efforts after the recent economic meltdown, a cadre of Wall Street’s biggest banks still dominates the derivatives markets, leaving some observers wondering whether the transparency the Act was supposed to bring was just a well-intentioned but overly optimistic dream.
The Dodd-Frank Wall Street Reform Act (Act) gave the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) extensive new authority over participants in the derivatives and swaps markets. But the transparency and equity many hoped the Act would bring to the markets is bottlenecked in the agencies charged with implementing the legislation.
The CFTC was scheduled to consider conflict of interest rules for swap execution facilities, derivatives clearing organizations and designated contract markets at their January 13, 2011 meeting, but disagreement about the scope of the rules resulted in the items being nixed from consideration at the meeting.
Read this complete analysis of the impact 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 Act in Advisor’s Journal, see Dodd-Frank Wall Street Reform and Consumer Protection Act (CC 10-35) and Wall Street Reform Act Mandates Study of Financial Planning Industry (CC 10-73).
Posted in Wealth Management | Tagged: Business, Commodity Futures Trading Commission, Derivatives market, Dodd–Frank Wall Street Reform and Consumer Protection Act, Market, Securities and Exchange Commission, U.S. Securities and Exchange Commission, Wall Street | Leave a Comment »
Posted by William Byrnes on February 22, 2011
As reported earlier this month in Advisor’s Journal [Qualified Charitable Distributions from an IRA (CC 11-03))], a qualified charitable distribution (QCD) of up to $100,000 made from an IRA will not be included in the taxpayer’s gross income, as long as the contribution is made directly from the trustee to a public charity or conduit private foundation when the account owner is at least 70½ years old.
One benefit of taking a QCD is that it can qualify as a required minimum distribution (RMD). For the taxpayer who does not have a financial need for the distribution, making a QCD is an opportunity to take the RMD—avoiding the severe tax penalties for not taking the distribution—while excluding the distribution from taxable income.
But because the QCD provision lapsed during 2010, taxpayers who took an RMD during 2010 are out-of-luck.
Read this complete analysis of the impact 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).
Posted in Retirement Planning | Tagged: Charitable organization, Individual Retirement Account, Internal Revenue Service, Pension, Roth IRA, tax, Taxation, Traditional IRA | Leave a Comment »
Posted by William Byrnes on February 21, 2011
The Securities and Exchange Commission (SEC) submitted to Congress a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisers — no less stringent than currently applied to investment advisers under the Investment Advisers Act of 1940– when those financial professionals provide personalized investment advice about securities to retail investors.
Section 913 of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required SEC to conduct a study to evaluate:
- The effectiveness of existing legal or regulatory standards of care (imposed by current authorities) for providing personalized investment advice and recommendations about securities to retail customers; and
- Whether there are legal or regulatory gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for providing personalized investment advice about securities to such customers that should be addressed by rule or statute.
In the study, the SEC notes that investment advisers and broker-dealers are regulated extensively under different regulatory regimes. But, the study claims, many retail investors do not understand and are confused by the roles played by investment advisers and broker-dealers. The study finds that “many investors are also confused by the standards of care that apply to investment advisers and broker-dealers” when providing personalized investment advice about securities. Read the analysis at http://www.advisorfyi.com/2011/01/new-dodd-frank-study-calls-for-stringent-standards/
Posted in Uncategorized, Wealth Management | Tagged: Broker-dealer, Dodd–Frank Wall Street Reform and Consumer Protection Act, Investment, Investment Advisers Act of 1940, Regulation, Standard of care, U.S. Securities and Exchange Commission, United States Congress | Leave a Comment »
Posted by William Byrnes on February 19, 2011
The Wall Street Journal has recently noted that significant withdrawal of funds from municipal bonds throughout the country totaled over $4 billion in a one week period. [1] According to some estimates, the withdrawal accounts for only one tenth of one percent of the overall muni bond market. [2] Yet, the numbers are record breaking. The withdrawal is the largest from the muni bond market since last November, reports the Wall Street Journal.
However, the trouble seems to have started well before Meredith Whitney appeared on “60 Minutes” in late December of last year when she call for the future “collapse” of the muni bond market. In her opinion, the state and local governments will be forced to default on obligations made to bond holders because the governmental entities are quickly running out of liquidity. Nevertheless, the muni bond numbers reflect the ”10th straight week of outflows, which total roughly $20.6 billion.” [3]
Whitney though may have created in the muni bond market what is now known as Gladwell’s “Tipping Point”. Read the full analysis at AdvisorFYI
Posted in Wealth Management | Tagged: 60 Minutes, Bonds, Business, Investing, Meredith Whitney, Municipal bond, Stocks and Bonds, Wall Street Journal | Leave a Comment »
Posted by William Byrnes on February 18, 2011
Administrative Director of Graduate Programs
JOB DESCRIPTION
JOB TITLE: Administrative Director of Graduate Programs (previously LLM)
REPORTS TO: Associate Dean for Distance Education Programs
POSITION STATUS: Full-time, Exempt
GENERAL SUMMARY: Responsible for the coordination and support of the graduate distance education and continuing professional education programs with the departments of the central administration, including admissions, financial aid, business office, student services, information technology, and library. The Administrative Director is chiefly responsible for providing high level support to Associate Dean for Distance Education Programs and activities related to program development, relationship building with professional organizations, legal and financial institutions and individual students, and to the entrepreneurial activities related to the delivery of continuing education programming to a wide array of professionals globally.
ESSENTIAL JOB FUNCTIONS:
• Coordinate the student registration process four times per year for new and current LLM and JSD candidates with the Registrar and within each course.
• Serve as one of three key point persons to handle the questions and needs of current and incoming graduate students, as well as those of working professionals seeking continuing education opportunities.
• Support adult learners through the processes and structures of engaging with financial aid, online learning systems such as blackboard and WIMBA, and online publisher databases via proxy access such as CCH.
• Serve as main point of contact for Embanet regarding operations: admissions, student registration and reconciliation.
• Developing quarterly contact list for leads and applicants and refreshing alumni contact list.
• Develop training materials for new students on technology and systems used in the program.
• Serve as main point of contact for faculty of the program in terms of their contracts and payment, scheduling of their classes and training on Wimba.
• Coordinate graduation for the LL.M. and JSD students, process their graduation forms, order their diplomas and certificates.
• Participate in supporting the collaborative entrepreneurial process of new program development and implementation via developing processes and protocols.
• Provide direct supervision to student workers, federal work study students and international interns who work for the Program to support above functions.
• Responsible for all administrative activities, working closely with other departments to ensure proper and timely processing and reporting related to programs.
• Provide support and organization for travel and entertainment.
• Other duties as assigned.
KNOWLEDGE, SKILLS AND ABILITIES
• Bachelor degree required, preferred graduate level or professional degree, in law, business or related area.
• Preferred 5 years working in the financial services with international experience.
• Must be comfortable working with senior partners and high level officials within the banking, finance, law, accounting, private business, and government arenas.
• Must have an understanding of asynchronous and synchronous distance technology education at the graduate level.
• Must have the ability to understand administrative and technical structures to ease adult learners through such processes and structures of financial aid, online learning systems such as blackboard and WIMBA, and online publisher databases via proxy access such as CCH.
• Multiple languages are a plus.
WORK SCHEDULE
Full time, Monday through Friday, 40 hours per week. Nights and weekends as needed.
CONTACT
All contact must be with Lisa Chigos (lchigos@tjsl.edu). Send CV and cover letter.
Posted in Courses | Tagged: Colleges and Universities, Dean (education), Distance education, education, Graduate school, Master of Laws, United States, WIMBA | Leave a Comment »
Posted by William Byrnes on February 18, 2011
A recent Tax Court case demonstrates the severe tax consequences for an employee when a welfare-benefit plan ceases to qualify under section 419A of the Tax Code. Section 419A governs “qualified asset accounts,” which are employer provided welfare-benefits plans that set aside funds for (1) disability benefits, (2) medical benefits, (3) severance benefits, or (4) life insurance benefits. In general, contributions by an employer to a welfare-benefit plan are tax deductible by the employer if they are ordinary and necessary business expenses. In the case, part of the funds contributed to the plan were used to buy life insurance coverage for the principal and other employees, with the rest of the funds constituting excess contributions.
Read this complete analysis of the impact 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).
Posted in Retirement Planning | Tagged: Employee benefit, Employment, insurance, life insurance, tax, Tax deduction, United States, Welfare | Leave a Comment »
Posted by William Byrnes on February 17, 2011
A recent Delaware Court of Chancery decision illustrates the severe consequences that can befall an insurance agent trustee who violates his or her duties to the trust’s beneficiaries. The agent in the case agreed to serve as trustee of a client’s life insurance trust.
The client, a Father, had a falling out with his son over the Father’s marriage to a woman 17 years his junior. Nevertheless, the Father and his second wife formed a trust for the benefit of the son. The couple asked their family insurance agent to serve as trustee of the trust. The trust purchased a second-to-die life insurance policy on their lives. Although the trust was irrevocable, the Father ad young wife asked the trustee to revoke the trust only three years after it was formed. The trustee intelligently refused to revoke the trust, but did agree to loan the policy’s cash value to the couple.
Read this complete analysis of the impact 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).
Posted in Trusts | Tagged: Business, Delaware Court of Chancery, Financial services, Fred Wilpon, insurance, Lawsuit, Trustee, United States | Leave a Comment »
Posted by William Byrnes on February 16, 2011
Why is this Topic Important to Wealth Managers? Discusses the new income reporting threshold for non-profit organizations. Provides details on the new level of reporting required on Form 990 for 501(c) organizations.
Generally the Internal Revenue Code requires the filing of an annual return by exempt organizations. [1] However, there are certain mandatory exceptions to the annual filing requirement for exempt organizations provided by the Code. [2]
Further, the tax law provides that the Secretary of the Treasury, through the Commissioner of the Internal Revenue Service may relieve exempt organizations from the annual filing requirement if the Secretary determines that such filings are not necessary to the efficient administration of the internal revenue laws. [3]
Before, exempt organizations were relieved from the Form 990 (Return of Organization Exempt from Income Tax) filing requirement for organizations described in § 501(c) (other than private foundations) whose annual gross receipts are normally not more than $25,000. [4]
Read the full analysis and on similar issues – AdvisorFYI
Posted in Tax Exempt Orgs | Tagged: 501(c), income tax, Internal Revenue Code, Internal Revenue Service, IRS tax forms, Non-profit organization, tax, Tax exemption | Leave a Comment »
Posted by William Byrnes on February 15, 2011
Why is this Topic Important to Wealth Managers? Discusses retirement plan investments with regards to client retirement planning. Provides types of investments retirement plans can and cannot make.
What types of investments can a retirement plan make?
Although there is no list of approved investments for retirement plans, there are special rules contained in the Employee Retirement Income Security Act of 1974 (ERISA) that apply to retirement plan investments.
In general, a plan sponsor or plan administrator of a qualified plan who acts in a fiduciary capacity is required, in investing plan assets, to exercise the judgment that a prudent investor would use in investing for his or her own retirement.
In addition, certain rules apply to specific plan types. For example, there are different limits on the amount of employer stock and employer real property that a qualified plan can hold, depending on whether the plan is a defined benefit plan, a 401(k) plan, or another kind of qualified plan.
Read the entire analysis at AdvisorFYI.
Posted in Retirement Planning | Tagged: 401(k), Business, Defined benefit pension plan, Employee Retirement Income Security Act, Human Resources, Investment, Pension, Retirement | Leave a Comment »
Posted by William Byrnes on February 14, 2011
Cost competitiveness of life insurance policies is an obvious determinant of suitability. Keeping costs low is critical because every dollar spent on expenses is one less dollar available to purchase more death benefit. In fact, a recent study by Morningstar revealed that “Low fees are likely to be the best predictor of a mutual fund’s future success,” and the same certainly holds true for life insurance products.
While different insurers refer to different policy expenses in different ways, all policy expenses in all life insurance policies fall into the following four categories: 1) cost of insurance charges (COIs), 2) fixed administration expenses (FAEs), 3) cash-value-based “wrap fees” (e.g., M&Es), and 4) premium loads. Each type of policy expense and its role and relevance in pricing and suitability is discussed in the complete analysis 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 life insurance product suitability in Advisor’s Journal, see Life Insurance Product Suitability (CC 10-90) and Financial Strength and Claims-Paying Ability (CC 10-115).
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Morningstar, Policy, United States | Leave a Comment »
Posted by William Byrnes on February 12, 2011
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) extended the income tax deduction for state and local sales taxes through December 31, 2011. The deduction expired on January 1, 2009, but Congress amended the provision retroactively, which will allow taxpayers to take the deduction on their 2010 taxes. The deduction, which has been slated to expire a number of times, has been revived by Congress repeatedly since it was introduced but has not yet been made a permanent part of the Code. Read this complete analysis of the impact 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 Tax Relief Act of 2010 in Advisor’s Journal, see Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01), Obama’s Social Security Tax Holiday: Penny Wise and Pound Foolish? (CC 10-119), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), & 2010 Estates: To Elect or Not to Elect (CC 10-124).
For in-depth analysis of income tax deductions, see Advisor’s Main Library: B4—Business Income and Deductions.
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Taxation | Tagged: accounting, Internal Revenue Service, Itemized deduction, January 1 2009, tax, Tax deduction, Unemployment benefits, United States | Leave a Comment »
William Byrnes' Tax, Wealth, and Risk Intelligence 