Posted by William Byrnes on December 20, 2010
Live lectured video-conference webinars (recorded for pod-cast) for lawyers, accountants, bankers, compliance officers, trust and company service providers
courses include online access to LexisNexis, Westlaw, CCH, Checkpoint, IBFD, BNA, Tax Analysts and many more library databases
– Chartered Asset Manager
– International Compliance
– Information Security and Cybercrime Law
– Law of Banking and Financial Institutions
– Loan Workouts, Debt Collection & Foreclosure
– International Tax & Financial Centers
– International Estate Planning
– United States Corporation Tax
– Business Bankruptcy
– E-Business Contract Law
To enroll please contact Prof. William Byrnes (email williambyrnes@gmail.com) Skype professorbyrnes or call +1 (619) 374-6955
Posted in Courses | Tagged: American Academy of Financial Management, Information security, law, Lawyers and Law Firms, LexisNexis, Professor, Reed Elsevier, Services, Skype, Tax Analysts, United States, Videoconferencing, Westlaw | Leave a Comment »
Posted by William Byrnes on December 20, 2010
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On Friday, President Obama signed into legislation, what is quickly becoming known as the Obama Tax Cuts, which extend tax breaks initially created by the George Bush Administration about a decade ago. For the previous discussions and various versions of this “long and winding road” of the passage of this new tax law – see Tax Deal Reached
The new tax law “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR. 4853)” provides an extension for two years (unless otherwise noted), of generally the following (not all inclusive):
The full free article and links to all the relevant legislation and Congressional explanations of the legislation may be read at http://www.advisorFYI.com
Posted in Taxation | Tagged: income tax, tax, Tax cut, Tax law, tax relief, Unemployment benefits | Leave a Comment »
Posted by William Byrnes on December 17, 2010
Much has been written about financial reform in the popular press. But where can insurance professionals find specific guidance on how the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“the D-F Bill”) affects them?
For the insurance industry, the focus of the 2,000-page D-F Bill is Title V, which creates a Federal Insurance Office (FIO) within the U.S. Treasury. Under Title V, the Secretary of the Treasury is given rulemaking authority to implement and delegate the new duties of the FIO. The D-F Bill also establishes that surplus and reinsurance insurers will be subject to the regulation of their “domicile” instead of having to comply with multiple state requirements.
The FREE white paper we have prepared covers all of this—and more—in clear and concise detail. Please CLICK HERE to access and download your copy from AdvisorFX—absoluetely FREE
Posted in Insurance | Tagged: Business, Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial services, Government, insurance, Regulators, U.S. Treasury, United States Department of the Treasury | Leave a Comment »
Posted by William Byrnes on December 16, 2010
Can life insurance agents and their carriers be held responsible for adverse tax consequences resulting from their advice to customers about transactions involving the policies agents recommend and sell? A customer who relied on agents for tax advice concerning an annuity transaction believed the agents should be held to account for recommending a transaction that turned out to carry an unexpected tax bill. She sued the Insurance Company in federal district court, claiming its agents committed fraud against her by failing to inform her of the tax consequences of an annuity rollover.
The plaintiff owned two annuities—valued at about $80,000 and $12,000—that she received in a divorce settlement. She contacted the insurance company to find out her options for rolling the annuities over into one policy. 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 or by calling the Panel of Experts.
Posted in Insurance | Tagged: Agent Resources, Agents and Marketers, Business, Customer, Financial services, insurance, Law of agency, Life | Leave a Comment »
Posted by William Byrnes on December 15, 2010
In a contentious move, the National Conference of Insurance Legislators (NCOIL) executive committee voted unanimously to adopt the Life Insurance Consumer Disclosure Model Act, (Model Act), which requires life insurance carriers to notify policy owners of settlement options when the policy owner is considering surrendering the policy or when the policy is set to lapse.
The life settlement industry is giddy over the Model Act—which should boost their business. But the insurance industry outlook on the Act is not so rosy—settlement essentially ensures that policies will not lapse before death benefits are paid and that many policy owners will choose settlement over carrier options like accelerated death benefits and policy surrender. Not all policy owners have a right to disclosure about settlements under the Model Act. The disclosure requirement applies only where the insured is sixty years old or older or “is known by the insurer to be terminally ill or chronically ill” and … 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 life insurance settlement options in Advisor’s Journal, see Don’t Overlook Beneficiary Designations and Settlement Options (CC 09-28)
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, Life settlement, Terminal illness, United States | Leave a Comment »
Posted by William Byrnes on December 14, 2010
Insurance companies have been getting a lot of press the last few years. But this time, it’s not a story about a health insurance carrier denying a father-of-five cancer patient’s potentially life-saving treatment. It’s a Los Angeles Times story pillorying life insurance company American General and several other carriers for rescinding life insurance policies after the insured’s death.
According to the Los Angeles Times article, $372 million in life insurance benefits were denied beneficiaries in 2009, doubling over the past decade even as life insurance policy sales have decreased.
The article breaks down the denied death benefits by insurance company, finding that some carriers deny death benefits more than others. The prime target …… 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 a life insurance company’s right to rescind a policy after issuance, see Advisor’s Main Library: Section 20 C—Payment Of Proceeds.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Los Angeles Times, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on December 13, 2010
Why is this Topic Important to Wealth Managers? Many US expats who do not work for a US headquartered company are failing to report pensions they are accruing from the companies they are working for overseas. These clients may incur large reporting penalties.
Submission by Thomas Carden, IRS Enrolled Agent
Many expats that do not work for a US based company are failing to report pensions they are accruing from the overseas companies they are working for. They often disregard the pension because they incorrectly assume that it is not taxable in the US.
However, the vast majority of foreign pension plans are not considered to be qualified by the IRS. Consequently, these foreign pension plans do not enjoy any tax mitigation – the plans are taxable.
The IRS has very rigorous regulations for plan reporting and for the criteria to be a qualified plan, and thus foreign employers rarely seek such plan qualification. Compounding the problem is that most financial professionals are rarely asking their clients with foreign employers “Do you have a foreign pension that contributions are being made to?”
Because of this mistaken belief that such foreign pension plans are to be treated like those in the US, many expats are incorrectly reporting their income net of any pension contributions.
Before FATCA (the Foreign Account Tax Compliance Act of 2010) the pension contributions were generally not being reported to the IRS, thus they were incorrectly escaping taxation on US returns. The goal of FATCA is to substantially capture information on the number of these accounts and many other foreign account types turning that information over to the IRS. The act puts onerous penalties on financial institutions that do not report accounts that are in the names of US citizens and other US taxable persons.
Any foreign institution that does not agree will be subject to a thirty percent withholding rate on payments made to it. Because of the penalties and the general move toward cross border reporting in financial transactions, the IRS will be receiving a large amount of information on these previously unreported accounts. The act also requires individuals to disclose any foreign accounts with a balance that exceeds $50,000. Failure to do so may result in an initial fine of $10,000 plus additional penalties.
The good news is that the acts reporting requirements are set to begin on January 2nd of 2012. Thus, expats have time to address the issue of unreported foreign pensions. The problem for expats with these unreported accounts is that the contributions are counted as taxable income in the US for the year they were made to the pension. If the IRS receives information about such an account, it is highly probable that it will send a “deficiency letter” stating that tax is due on the unreported amount. At worst, finding an unreported account may trigger an arduous audit.
The solution for the problem is for expats with any unreported pension accounts to amend the returns and restate the income received, for any years that contributions were made to the accounts. Such disclosures for past non-reporting should probably be handled by a expert in this area to avoid any unnecessary penalties.
Submission by Thomas Carden, a IRS Enrolled Agent and Expatriate Tax Specialist with 15 years of Tax and Financial Services Experience. He is currently enrolled in the Diamond Program at Thomas Jefferson School of Law while also studying to sit for the ATT tax designation in the UK. You may contact him via his email – tmcarden@yahoo.com.
Posted in Taxation | Tagged: Financial services, Individual Retirement Account, Internal Revenue Service, Pension, tax, Tax avoidance and tax evasion | Leave a Comment »
Posted by William Byrnes on December 10, 2010
For as long as life insurance has existed, con artists and murderers have sought payouts from policies on the lives of their victims. Tomisue Hilbert, wife of insurance giant Conseco, Inc.’s founder Stephen Hilbert, suspects that her mother, Suzy Tomlinson, was a victim of one such schemer.
She looks to hold AIG responsible for her mother’s untimely death, believing that a high-value policy issued by American General (an AIG subsidiary) on her mother’s life was the impetus behind a scheme that ended with her mother’s death. The life insurance policy at issue in the case is a $15 million policy on Tomlinson’s life naming Indiana businessman J.B. Carlson as its beneficiary. Policy premiums were paid with premium financing.
On September 29, 2008, Suzy Tomlinson drowned in her bathtub, fully clothed, after a night of drinking. Tomlinson’s death occurred right before a $1.27 million payment was due on the premium finance loan. Tomisue Hilbert’s lawsuit notes the fortuitous timing—for Carlson—of her mother’s death, Carlson’s debts of $5.9 million and the fact that Carlson may have been the last person to see her mother alive.
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).
Posted in Insurance | Tagged: American International Group, Conseco, Indiana, insurance, Insurance policy, life insurance, Premium Financing, United States | Leave a Comment »
Posted by William Byrnes on December 9, 2010
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Record numbers of taxpayers will be subject to the 2010 alternative minimum tax (AMT) if Congress does not act by the end of the year. Congress has considered a number of possible AMT “patches” that would reduce the number of taxpayers subject to the AMT but has been unable to agree on the right approach. Although Congress passes an AMT patch annually, this year’s patch is coming later than usual.
In a November 9, 2010, letter to the IRS’s Douglas Shulman, House Ways and Means and Senate Finance committee members said that the IRS should expect Congress to pass 2010 alternative minimum tax relief by the end of this year. The joint letter was signed by Finance Committee Chair Max Baucus (D-Mont.), Finance Committee ranking minority member Chuck Grassley (R-Iowa), acting Ways and Means Committee Chair Sander M. Levin, (D-Mich.), and Ways and Means Committee ranking minority member Dave Camp (R-Mich.). 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 the AMT, see Advisor’s Main Library: Section 19.D—Additional Taxes; Credits For Prepayments.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Taxation | Tagged: Alternative Minimum Tax, Chuck Grassley, Douglas Shulman, Internal Revenue Service, Sander M. Levin, Senate Finance committee, United States Congress, United States House Committee on Ways and Means | Leave a Comment »
Posted by William Byrnes on December 8, 2010
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Buzz about the Financial Industry Regulatory Authority, Inc. (FINRA) taking responsibility for regulation of investment advisers has been circulating for a couple of years now—but the talk is suddenly sounding less like gossip and a lot more like a plan. Last week, FINRA’s chief executive, Richard Ketchum, sent a letter to the SEC touting the benefits of appointing a self-regulatory organization (SRO) to oversee advisors. Although Ketchum’s letter does not directly ask the SEC to cede some of its regulatory authority over advisers to FINRA, hints abound.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed earlier this year, mandates an SEC study of its investment advisor examinations and whether delegation of advisor regulation to an SRO would improve examinations. 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 FINRA in Advisor’s Journal, see FINRA Proposes Eliminating Industry Insiders from Arbitration Panels (CC 10-80).
We invite your questions and comments by posting them below, or by calling the Panel of Experts.
Posted in Compliance, Wealth Management | Tagged: Business, Chairman, Financial adviser, Financial Industry Regulatory Authority, Investor, Regulation, U.S. Securities and Exchange Commission, United States | Leave a Comment »
Posted by William Byrnes on December 7, 2010
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Although IRS-approved retirement plans are intended to allow plan participants to sock away cash for retirement, some emergencies will permit a participant to withdraw plan funds prior to retirement—and there may be options to reduce or eliminate any tax due on the withdrawal.
Serving as a great reminder of the general principals of emergency distributions, the IRS recently ruled whether a qualified plan was permitted to make “unforeseeable emergency distributions” in three fact scenarios. In the first, the plan participant wanted to take an emergency distribution to repair water damage to his home. In the second situation, the participant requested an emergency distribution to pay his nondependent son’s funeral expenses. In the third situation, the participant requested an emergency distribution to pay “accumulated credit card debt.” 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).
Posted in Taxation | Tagged: Business, Credit card debt, Individual Retirement Account, Internal Revenue Service, Pension, Retirement, Roth IRA, tax | Leave a Comment »
Posted by William Byrnes on December 6, 2010
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The Wall Street Reform Act1—signed into law by President Obama on July 21, 2010— grants the SEC the power to impose a fiduciary duty on broker-dealers. Although the SEC has not yet moved to apply the fiduciary standard—already applicable to registered investment advisors—to broker-dealers, both sides of the argument have made their voices heard, commissioning studies and sending volleys of comments to the SEC.
Holding broker-dealers to a higher standard would seem, at first glance, to be a positive for their customers. But a November 1, 2010, Securities Industry and Financial Markets Association (SIFMA) commissioned study calls into question whether applying a fiduciary standard of conduct to all brokerage activities would help investors. 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 fiduciary standard of conduct 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).
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Wealth Management | Tagged: Broker-dealer, Consumer Federation of America, Fiduciary, Financial adviser, Registered Investment Advisor, Securities Industry and Financial Markets Association, U.S. Securities and Exchange Commission, Wall Street | Leave a Comment »
Posted by William Byrnes on December 3, 2010
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Wealth Managers Employment Opportunities
In 2008, Cap Gemini reported that wealth management firms will sharply increase hiring because of the impending retirement, from 2010-2020, of “baby-boomer” wealth managers. Over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally, and their assets, continue to grow steadily, and because half of HNWIs do not have a wealth manager.
Half of HNWIs Do Not Have a Wealth Manager
According to Oliver Wyman, only 50% of HNWI assets are professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.
Increasing Wealth Manager Salaries and Bonuses
The San Diego Business Journal reported in 2009 that wealth management salaries held steady in the midst of the great recession, ranging from USD150,000 to USD400,000. Even more exciting, Cap Gemini reported that “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”. Reuters reports that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move. (See Private banks battling for advisers to super-rich)
Significant Wealth Manager Hiring to Begin Working January 2011
Reuters reports that “Wells, he said, is looking outside the private banking world in its bid to add 150 new recruits. Citi has looked to Goldman Sachs Private Wealth Management as well as Barclays Wealth, a Barclays unit built from a business acquired from Lehman Brothers. Citi has said it aims to double its private banker ranks to about 260 within three years.”
Posted in Wealth Management | Tagged: Barclays Wealth, Capgemini, Financial services, High net worth individual, Lehman Brothers, Oliver Wyman, Private wealth management, San Diego Business Journal, Wealth Management | Leave a Comment »
Posted by William Byrnes on December 2, 2010
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According to a recent report by Javelin Strategy and Research (California); “[a]lthough the recent ‘Great Recession’ has caused millions of Americans to tighten their belts financially, nearly one out of five consumers are financial sleepwalkers”—those who do not manage their personal finances. [1] That’s right; at least 20% of Americans are not currently using wealth managers to manage their personal finances. The report states that the rate is more than double that of 2009. [2] This presents a vast opportunity for wealth managers to expand their market share.
The United States Department of Labor project that personal financial advisors are estimated to grow by 30 percent over the 2008–18 period. “Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years.” [3] Further, “[a]s more members of the large baby boom generation reach their peak years of retirement savings, personal investments are expected to increase and more people will seek the help of experts.” [4]
Moreover, there is a trend in corporate America to replace “traditional pension plans with retirement savings programs, so more individuals are managing their own retirements than in the past,” creating additional opportunity for wealth managers. [5] In addition, as medical technology continues to advance and people on average, live longer, the need for additional financial planning arises.
The average compensation for wealth managers is around $89,920 to $110,130 for those marketing insurance products and services as well as other financial investments. [6] New York has the most wealth managers in terms of total numbers. [7] In addition, New York wealth managers made on average $146,460, the most from any state. [8] Read the entire article at AdvisorFYI.
For previous blogticles covering the wealth management industry, see the series beginning The Future of Wealth Management
Posted in Wealth Management | Tagged: California, Finance, Financial services, New York, Pension, United States, United States Department of Labor, Wealth, wealth management financial planning | Leave a Comment »
Posted by William Byrnes on December 1, 2010
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The Energy Improvement and Extension Act of 2008 created new laws requiring most regulated securities transactions occurring after December 31, 2010 to be subject to cost basis reporting by securities brokers to the IRS. [1] Currently, brokers are required to report the gross proceeds from the sale of a security on Form 1099. [2] The new law will add reporting of client’s adjusted basis of the security, and whether the gain is a short or long-term. [3] Mutual fund cost basis reporting is to start a year after regulated securities reporting, and options and debt contracts are to follow a year after mutual funds. The reports are to be filed on a Form 1099-B, Proceeds from Broker and Barter Exchange. [4]
Why is it important to know that the IRS will be receiving information about the values of securities of clients? Read the entire article at AdvisorFYI.
Posted in Taxation | Tagged: Broker, Cost basis reporting, Form 1099, Internal Revenue Service, IRS tax forms, Mutual fund, Public Law 110-343, Security (finance) | Leave a Comment »
Posted by William Byrnes on November 30, 2010
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As we have discussed in previous blogticles, captive insurance can be a viable method to more efficiently protect against certain risks under various circumstances. For discussion on these topics please see our blogticles on AdvisorFYI from the week of August 30th, Monday through Wednesday, Alternative Risk Transfer Basics, Risk and Self-Insurance, andCaptive Insurance Company Introduction.
In addition, we have discussed in previous blogticles the ability to deduct prepaid expenses for certain items, both from an accrual basis and cash receipts and disbursements method taxpayer approach. One such class of deductions that is generally allowable is, “insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.”
See generally our blogticles from November entitled, Year End Tax Planning: Pre-Paid Insurance Expense For Accrual Accounting Taxpayers, and Year End Tax Planning: Pre-Paid Expenses For Cash Accounting Taxpayers.
Read this entire set of articles starting at AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Alternative Risk Transfer, Business, Captives, Financial services, Health insurance, insurance, risk management, Self-Insurance | 1 Comment »
Posted by William Byrnes on November 29, 2010
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Why is this Topic Important to Wealth Managers? Provides an update for wealth managers into the status of employer owned life insurance. Discusses two notable exceptions to the general rule including income from the death benefits of an insurance policy when paid to a trade or business.
In 2006, Congress added Section 101(j) to the Internal Revenue Code which addresses the taxation of employer owned life insurance (EOLI) under Section 863 of the Pension Protection Act. The law departed from the traditional status of life insurance proceeds payable by death of the insured as excluded from gross income. [1]
Section 101(j) essentially taxes life insurance proceeds payable at death, in the amount over contributions or basis, when the policy is owned by a trade or business, where the employer is the beneficiary, and the employee is the insured. [2] There are a certain number of exceptions where the benefit payable to the beneficiary will remain excludable. [3] In all of the exceptional situations notice and consent requirements must be met. [4] For a discussion on the notice requirements specifically, or Section 101(j) generally, please see AdvisorFX: Death Benefits Under Employer Owned Life Insurance Contracts. [5]
Since the enactment of law, the Service has issued guidance in regards to what transactions may be allowed under section 101(j). That guidance came in part, last year when the Service published Notice 2009-48.
How do some of the exceptions work in consideration of the guidance published in Notice 2009-48? Read our entire analysis and citations at AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Business, employer owned life insurance, Financial services, insurance, Insurance policy, Internal Revenue Code, life insurance, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on November 26, 2010
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This week’s blogticles discussed compliance reporting generally regarding foreign transactions and activities. Today, we will continue to explore some of the common reporting requirements that are filed based on domestic and international activity.
Congress has enacted legislation to the affect that the Secretary of the Treasury requires financial institutions to report any suspicious transaction relevant to “a possible violation of law or regulation.” [1] The Financial Crimes Enforcement Network (FinCEN) maintains theses “reports in a central database and makes the information available electronically to state and federal law enforcement and regulatory agencies to assist in combating financial crime.” [2]
Currency Transaction Reports
Under Federal Statute the Department of the Treasury requires “banks, securities broker-dealers, money services businesses, casinos, and other financial institutions”, to file a “report for each transaction involving the payment, receipt, or transfer of U.S. coins or currency (or other monetary instruments as Treasury may prescribe)” in excess of $10,000. [3]
Report of International Transportation of Currency or Monetary Instruments
Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Financial Crimes Enforcement Network, Financial institution, Financial services, Money Laundering, Suspicious activity report, United States, United States Department of the Treasury, United States Secretary of the Treasury | Leave a Comment »
Posted by William Byrnes on November 25, 2010
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Use of Foreign Trust Property and Deemed Distributions
The new FATCA law expands 26 U.S.C. § 643(i) to provide that any use of trust property by a U.S. grantor or U.S. beneficiary, or any U.S. person related to a U.S. grantor or U.S. beneficiary, is treated as a distribution equal to the fair market value of the use of the property. [1]
“Thus, the rent free use of real estate, yacht, art work or other personal property (wherever located including the United States) or an interest-free or below-market loan of cash or uncompensated use of marketable securities will trigger a distribution equal to the FMV for the use of such property to the extent of distributable net income”. [2]
However, if the trust is paid the fair market value, within a reasonable period of time, for the use of property or the market rate of interest on a loan by the trust, the new law does not create a deemed distribution. [3] Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Business, Fair market value, FMV, Internal Revenue Code, Property, Real estate, Security (finance), United State | Leave a Comment »
Posted by William Byrnes on November 24, 2010
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The Federal Government has estimated that the “United States loses an estimated $345 billion in tax revenues each year as a result of offshore tax abuses primarily from the use of concealed and undeclared accounts held by U.S. taxpayers or their controlled foreign entities.” [1]
In consideration of the goal of eliminating this gap, “it is not surprising that the government recently ratcheted up its pressure on taxpayers who structured their activities, in many cases, with the active help and assistance of promoters and facilitators to avoid reporting their taxable income on their tax returns or hide these offshore accounts from the government.” [2] This increased “pressure” came in the form of the HIRE Act passed in the first quarter of 2010. [3] As was discussed earlier this week,[4] the new law provides for reporting requirements by foreign financial institutions with U.S. accountholders about the status, specifically identity and balance, of their account. [5] Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Employment, Federal government of the United States, Hiring Incentives to Restore Employment Act, Internal Revenue Service, Offshore bank, Social Security, tax, United States | Leave a Comment »
Posted by William Byrnes on November 23, 2010
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During the first quarter of 2010, President Obama signed into law H.R. 2847, the Hiring Incentives to Restore Employment Act. “The act provides incentives for job creation, but in order to pay for the incentives, the act also contains significant changes that will affect foreign financial institutions that choose to do business with U.S. persons.” [1] Half of the “U.S. Congressional Record that contains the act” is “dedicated to foreign account tax compliance.” [2]
Therefore, “although the act is commonly referred to as the HIRE Act for its focus on job creation, one of its main purposes is to target tax dodgers’ use of foreign accounts.” [3] The act is basically a model of the 2009 Foreign Account Tax Compliance Act (FATCA) which was introduced by the Senate. “The act incorporates substantially all of FATCA, with one important exception: FATCA would have imposed reporting requirements on material advisors, including attorneys, accountants, and other professionals, who advise on acquisitions or formations of foreign entities.” [4]
Read the entire article at AdvisorFYI.
Posted in Uncategorized | Tagged: Barack Obama, Congressional Record, Employment, Financial institution, Hiring Incentives to Restore Employment Act, Incentive, tax, United States | Leave a Comment »
Posted by William Byrnes on November 22, 2010
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There is no specific Federal law that prohibits an individual from owning any interest in a financial account in foreign jurisdictions. “However, because offshore financial accounts can be used to hide criminal proceeds or evade taxes, federal law does require disclosure of such accounts.” [1]
“Congress has directed the Secretary of the Treasury to require residents and citizens of the U.S., or persons in and doing business in the U.S., to maintain records and file reports of transactions and relations with foreign financial agencies.” [2]
Specifically, every “U.S. citizen, resident and businessperson who has a financial interest in, or signatory authority over, one or more bank accounts, securities accounts or other financial accounts in a foreign country”, must “report that relationship to the U.S. Department of the Treasury if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year”, annually through Form TD F 90-22.1. [3]
Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Bank, Bank account, Citizenship in the United States, Congress, Finance, Internal Revenue Service, United States, United States Department of the Treasury | 1 Comment »
Posted by William Byrnes on November 19, 2010
Why is this Topic Important to Wealth Managers? Section 1035 exchanges are known for deferral of a taxable gain through a step-up in basis into a new contract. The tax benefits granted by Congress are certainly advantageous, however, in an uncertain economy Section1035 exchanges also offer wealth managers the opportunity for new business. Because of the potential little to no out-of-pocket expense associated with these transactions, many wealth mangers are currently implementing this advantageous exchange during sluggish times.
It is often the case that policy owners’ expectations change during the life of a contract. It makes sense to re-evaluate objectives to ensure they’re still aligned with client goals. Section 1035 exchanges are one area where this practice is commonplace.
Generally, Congress allows owners of life insurance and annuity contracts to exchange that contract for another, similar or related insurance or annuity contract without recognizing any unrealized gain which may have accrued within the policy, so long as the insured stays the same.
Read the entire article at AdvisorFYI.
Posted in Insurance | Tagged: Business, Congress, Financial services, insurance, Life annuity, life insurance, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on November 18, 2010
Why is this Topic Important to Wealth Managers? Provides information on one additional planning tool that many wealth managers find useful for affluent clients who own a small business. Gives an overview of the nonqualified plans as well as proving a common use of life insurance to fund plan obligations well into the future.
Simply a nonqualified pension plan is a retirement plan that does not meet the requirements under the tax code and federal employment law to be considered qualified, and therefore the nonqualified plan is treated differently for tax purposes. [1]
What are some of the advantages of using a nonqualified plan over a qualified retirement plan? [2]
- Flexibility and selectivity—because the plan is not subject to requirements under the qualified plan rules, employers have much more control in terms of who may be included and the varying terms of each individual participant.
- Vesting and contingencies—nonqualified plans allow for the employer to exclude all amounts not met by vesting conditions or contingencies that the employee must achieve to obtain the benefit. Say for example, that the retirement funds become available to the employee after 10 years of faithful service to the company. If the employee does not work for 10 years, no benefits have thus accrued and the employee has no benefit under the plan.
- Cost savings through minimal reporting requirements—since nonqualified plans do not usually fall within major regulatory scope of qualified plans, the cost to administer these plans is generally less than some alternatives.
How are nonqualified plans treated for tax purposes? Read the entire blogticle at AdvisorFYI.
Posted in Insurance, Pensions | Tagged: Business, Employment, Financial services, Human Resources, life insurance, Pension, tax, United States | Leave a Comment »
Posted by William Byrnes on November 17, 2010
Why is this Topic Important to Wealth Managers? Presents the general treatment of life insurance purchased through qualified pension plans. Discusses a common scenario where life insurance premiums may be deductible by an employer aw well as the consequential income tax effect on plan participants.
Suppose your client is the sole shareholder and president of a closely held corporation. The business generates significant positive income and cash-flow on a steady basis. Assume the client himself may have an insurance need without the funds personally to cover the obligation. Assuming further the business has a qualified pension (defined contribution or defined benefit) plan, one consideration may be to purchase life insurance through the qualified pension plan. [1] Assume this option, up to an insurable interest limit, was also offered to all employees participating in the qualified plan.
Since employer contributions to qualified plans are sometimes deductible, amount used to purchase life insurance may be also, subject to the incidental limitation. [2] First though, “[t]o qualify for deduction as a contribution to a qualified plan, the employer’s contribution must first qualify as an ordinary and necessary business expense within the limits of reasonable compensation.” [3] As a general rule, so long as the amount of the insurance is no more than 25% of the total cost of the plan the amount may be deducted as an incidental benefit to the plan.
Read the entire blogticle at AdvisorFYI.
Posted in Insurance, Uncategorized | Tagged: Business, Cash flow, Corporation, Employment, income tax, insurance, life insurance, Pension | Leave a Comment »
Posted by William Byrnes on November 16, 2010
Why is this Topic Important to Wealth Managers? Discusses a basic deferred compensation plan available to many small businesses seeking to retain key personnel. Provides discussion on common transactions as well as expected tax consequences.
Key employee insurance generally means “a life insurance policy owned by and payable to a business that insures the lives…of employees whose deaths would cause a significant economic loss to the business, upon whose skills talents, experience or business or personal contacts the business is dependent, and who would be difficult to replace.” [1]
Generally, life insurance premiums payable by a business are not deductible. [2] Which means the income received (whether in a single sum or otherwise) by the business, under the life insurance contract by reason of the death of the insured, is not included in gross income. [3]
If a key employee policy is transferred for valuable consideration, just as with other life insurance policies, the income tax benefit normally afforded to life contract proceeds payable at death may be extinguished. [4]
As was discussed a few weeks back in our blogticle: AdvisorFYI- Treatment Life Insurance Contracts—Part II: Secondary Market Participants, “[i[n the case of a transfer for valuable consideration…the amount excluded from gross income shall not exceed an amount equal to the sum of the actual value of the consideration paid and the premiums and other amounts subsequently paid by the transferee.” [5] In other words, the transferee must include the death benefits as gross income over the amount of consideration and any additional premiums paid.
Read the entire blogticle at AdvisorFYI.
Posted in Insurance | Tagged: Agents and Marketers, Business, Financial services, insurance, Insurance policy, life insurance, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on November 15, 2010
Why is this Topic Important to Wealth Managers? Provides details about one concept that wealth managers often overlook, the generation skipping transfer tax. Also presents general concept themes and examples to show effective uses of life insurance and trust in consideration of the tax.
In general, the generation-skipping transfer tax is levied on the value of life insurance that is transferred during the grantors lifetime or at death, to a skip person. [1] The GST is levied in addition to estate and gift taxes. [2]
The generation-skipping transfer (GST) tax “scheduled to resume in 2011 at a rate of 55%, with a $1 million exemption. The rate was 45% in 2009, with a $3.5 million exemption.” [3] For more information about the expiring tax cuts and new tax rates, see our blogticle: AdvisorFYI: Estate and Gift Taxes, Tax Cuts and More.
“Certain direct gifts that qualify for the gift tax exclusion may also qualify for an annual exclusion that can be applied against the GST tax.” [4] Many wealth managers encourage clients to take full advantage of the annual exclusion to avoid GST tax considerations at some later point. However, “the expiration of the GST tax has complicated matters for wealthy individuals hoping to make 2010 gifts in trust that skip generations.” [5] The use of trusts in consideration of the GST tax is discussed below. For examples of insurance uses with trusts generally, see our previous blogticle: Trusts that Purchase Life Insurance; Known Formally as the “Irrevocable Life Insurance Trust
Please link to AdvisorFYI for the entire blogticle.
Posted in Estate Tax | Tagged: Generation-skipping transfer tax, gift tax, Goods and Services Tax (Canada), GST, Internal Revenue Service, life insurance, tax, Tax cut | Leave a Comment »
Posted by William Byrnes on November 13, 2010
The estate tax is scheduled to explode in 2011. Analysts have assumed for years that Congress would act to fix the estate tax before it expired in 2010 and reverted to its pre-2001 levels in 2011, but it is looking more and more likely that the current Congress will hand the problem off to the next Congress on January 11, 2011. Although movement during the lame duck session is possible, it is not likely to generate any positive action on the estate tax.
Whether Congress acts on the estate tax or not, 2011 will likely bring drastic changes to the estate tax, requiring your clients to do significant tinkering on their estate plans. In the interim, estate planning professionals will continue to use disclaimer planning as a stop gap measure to deal with 2010′ s estate tax uncertainty. For instance, rather than split an estate’s assets between credit shelter and marital deduction trusts—which is unnecessary when there is no estate tax—all of the assets are devised to the spouse or the marital deduction trust. The surviving spouse can then disclaim up to the tax-free amount— … 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 estate tax conundrum in Advisor�s Journal, see Estate Tax Chaos (CC 10-02).
For in-depth analysis of the federal estate tax, see Advisor�s Main Library: Section 2 A—Overview Of The Federal Estate Tax And Its Calculation.
Posted in Estate Tax | Tagged: estate planning, Internal Revenue Service, Lame duck session (United States), law, Marital deduction, tax, United States, Widow | Leave a Comment »
Posted by William Byrnes on November 12, 2010
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Charitable contributions offer an opportunity to do good in the community while reaping tax benefits, but the tax benefit of a charitable contribution can be jeopardized by poor planning. Especially challenging can be the structuring of contributions by complex trusts as illustrated by the recently released IRS ruling, ILM 201042023.
There, a trust’s charitable contribution deduction was limited to the trust’s basis in the property; a deduction was not permitted for unrealized appreciation of the donated property. 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 benefits of charitable giving, see Use Charitable Giving to Enhance Family Business Succession Planning (CC 10-76).
For in-depth analysis of the use of charitable giving in estate planning, see Advisor’s Main Library: F�Estate Planning Through Charitable Contributions.
Posted in Taxation, Wealth Management | Tagged: Charitable contribution, Charitable organization, Donation, estate planning, Internal Revenue Service, tax, Tax deduction, Trust law | Leave a Comment »
Posted by William Byrnes on November 11, 2010
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The Health Care Act includes many provisions that are not directly related to health care but which are intended to fund the colossal government expenditure necessitated by the Act. One of the most burdensome changes imposed by the Health Care Act is the massive expansion of the payees and payment types that require a 1099. The new requirements will trigger a flood of paperwork for everyone involved, including payors, payees, and the IRS.
The new information reporting requirement will kick in on January 1, 2012. But the IRS will not be releasing guidance on the changes right away, so the time for taxpayers to implement the new requirements may run short. The comment period preceding the IRS’s release of proposed regulations passed at the end of September, so we can expect proposed regulations in the coming months. Advisor’s Journal will keep you informed as the IRS implements these new rules. 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 Health Care Act in Advisor’s Journal, see Changes Affecting Individuals in the 2010 Health Reform Law (CC 10-15), Changes Affecting Business in the 2010 Health Reform Law (CC 10-16), and Changes Affecting Large Employers in the 2010 Health Reform Law (CC 10-17).
Posted in Taxation | Tagged: Employment, Health care, Health care reform, Internal Revenue Service, Patient Protection and Affordable Care Act, Politics, tax, United States | Leave a Comment »
Posted by William Byrnes on November 10, 2010
An investment advisor accused of fraud faked his own death by parachuting D. B. Cooper-style out of his single-engine plane with ninety pounds of gold strapped to his chest, leaving behind a trail of twisted metal and offshore bank accounts.
Plot summary of the latest New York Times best seller? Nope. It is the true story of Marcus Schrenker, an Indiana financial advisor who was recently sentenced to prison for defrauding investors—including family members and friends—out of over $1 million.
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).
Posted in Uncategorized | Tagged: D. B. Cooper, Florida, Fraud, Gulf of Mexico, Indiana, Indianapolis, Investment management, Marcus Schrenker | Leave a Comment »
Posted by William Byrnes on November 9, 2010
Fee disclosure rules for 401(k) plans were expected out of the Department of Labor in early 2011, but the Department beat its own estimates, releasing a final rule on plan fee disclosures on October 14, 2010. The rules impose significant disclosure requirements that are important for everyone associated with self-directed employee retirement plans, including employees and their advisors and plan fiduciaries.
The new rules apply to plan years beginning after November 1, 2011. Although plan administrators have over a year to comply with the new requirements, the disclosure requirements are very extensive—the release that includes the regulations is over 150 pages long—and will require significant action on the part of most plan fiduciaries, so time is of the essence. 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 401(k) retirement plans, see Advisor’s Main Library: Section 17.5 401(k) Plans.
Posted in Wealth Management | Tagged: 401(k), Business, Employment, Fee, Human Resources, Labor Department, Pension, United States Department of Labor | Leave a Comment »
Posted by William Byrnes on November 8, 2010
The IRS’s latest split dollar rulings is a cautionary tale that, despite its happy ending, illustrates the danger lurking at every corner of the split-dollar life insurance regulations. The ruling shows that, despite otherwise meticulous adherence to the tax code and regulations, a split-dollar arrangement can fail for lack of filing a simple annual statement with the IRS. In PLR 201041006, the IRS considered a charity’s request to grant the charity an extension to make a required filing under the split-dollar regulations.
The taxpayer in the case is a charity (Charity) that ran a split-dollar life insurance program for its high-level employees. Not having any expertise with SDPs, Charity hired a company to revise its SDP. On the consultant’s recommendation, Charity entered into a new SDP. The new SDP was entered into after the Treasury issued final regulations under §§1.61-22 and 1.7872-15, which can carry adverse tax consequences for both parties to a split-dollar arrangement.
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 IRS split-dollar rulings in Advisor’s Journal, see Modification of Split-Dollar Arrangement Not a Material Change to Underlying Life Insurance Contract (CC 08-17) and Notice 2007-34 Explains Application of Section 409A to Split-dollar Life Insurance Arrangements (CC 07-18).
For in-depth analysis of split-dollar life insurance, see Advisor’s Main Library: Section 15.2 Split-Dollar.
Posted in Insurance, Taxation, Wealth Management | Leave a Comment »
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.
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.
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
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.
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.
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.
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….
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.
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.
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 –
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
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.
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).
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?
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
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
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
Posted in Tax Policy | Tagged: Agents and Marketers, Business, Business and Economy, Financial services, insurance, Internal Revenue Code, Life, life insurance | Leave a Comment »
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