Posts Tagged ‘Business’
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 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 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 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
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 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 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 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 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 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 11, 2011
Recently, in a series of Announcements the Internal Revenue Service stated that it was developing a schedule requiring certain business taxpayers to report uncertain tax positions on their tax returns.
Now the new requirements have been finalized, businesses and wealth managers have a better idea of the direction of Uncertain Tax Position reporting.
Reported under Schedule UTP for Form 1120 series, the Uncertain Tax Position reporting currently applies to a select number of corporations (however phase-in provisions will change this by 2012 and 2014).
Who must file a Schedule UTP?
The class of organizations that must file is limited (for now). Generally, for 2010 tax year returns most small businesses will not be included in the reporting, but that will probably change. Nevertheless, a corporation must file Schedule UTP with its 2010 income tax return if: To read this article excerpted above, please access AdvisorFYI
Posted in Tax Policy | Tagged: Business, Corporation, Internal Revenue Service, IRS tax forms, tax, Tax return (United States), TurboTax, United States | Leave a Comment »
Posted by William Byrnes on January 27, 2011
Although some items purchased by a business can be written off 100% for income tax purposes in the year of purchase, many types of property are not eligible to be deducted fully in the year they are purchased. The tax deduction for purchase of a piece of depreciable property is spread out over the life of the property.
Each year during the depreciation period the business is allowed to take a tax deduction for some portion of the purchase price of the property. The Tax Relief Act includes a provision allowing 100% bonus depreciation for some business assets. It also extends for an additional year the 50% bonus depreciation provisions previously scheduled to expire at the end of 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).
Posted in Taxation | Tagged: accounting, Business, Depreciation, Section 179 depreciation deduction, tax, Tax deduction, United States, Write-off | Leave a Comment »
Posted by William Byrnes on January 26, 2011
Dates: Lectures starting Tuesday February 1st, ending 10 weeks later by Friday April 8th
Course access begins upon payment
Time – 5:30pm Eastern (New York time) Tuesdays
Medium – Wimba live lectured webcam video-conference and TWEN (Westlaw) course-ware
Course Description – This course will concentrate on the Brazilian corporate structures, tax & financial systems, regulations and compliance, focusing on the practical aspects of doing business in Brazil. We will also discuss the impact of the recent changes in tax/corporate laws and regulations.
Tuition – continuing education audit student – only US$997
Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu
or call +1 (619) 961-4211
LexisNexis will make available to all students at a 76% discount the international tax treatise Foreign Tax & Trade Briefs covering 110 countries !
Posted in Courses | Tagged: BG Group, Brazil, Business, LexisNexis, New York, South America, United States, Westlaw | Leave a Comment »
Posted by William Byrnes on January 25, 2011
Although overshadowed by the fight over the Obama tax agreement, mutual fund legislation passed the House on December 15. The Registered investment Company Modernization Act of 2010 (RICM Act), H.R. 4337, was originally passed by the House on September 28, but the Senate amended the bill, forcing a second vote in the House. The President signed it into law December 22 – Public Law 111-325.
Tax Code provisions governing mutual funds have not had a substantial update since 1986, with some components of the Code relating to mutual funds sitting untouched for sixty or more years. The tax and regulatory landscape has changed significantly in the intervening years, which has left the tax rules for mutual funds sorely in need of updating.
The RICM Act brings the Tax Code’s treatment of mutual funds and other registered investment companies (RICs) up to date by introducing the following provisions to the Tax Code, among others: 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 mutual fund investment in Adviso’rs Journal, see Can Term Life Coupled with a Mutual Fund Investment Replace a Variable Universal Life Policy? (CC 10-77).
Posted in Tax Policy | Tagged: Business, Business and Economy, Financial services, Funds, Investing, Investment, Mutual fund, tax | Leave a Comment »
Posted by William Byrnes on January 20, 2011
Beginning last week life insurance brokers in the Big Apple started disclosing commissions to consumers. New York is one of the first states that are mandating life insurance commission details to be disclosed to clients.
Under New York Insurance law, [1] an insurance producer selling or renewing an insurance contract must disclose the following information to the purchaser orally or in writing not later than application for the insurance contract or the renewal:
(1) whether the insurance producer represents the purchaser or the insurer for purposes of the sale;
(2) that the insurance producer will receive compensation from the selling insurer based on the insurance contract the producer sells;
(3) that the compensation insurers pay to insurance producers may vary depending on a number of factors, including the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts that the producer provides to the insurer; and
(4) that the purchaser may obtain information about the compensation expected to be received by the producer for the sale and for any alternative quotes obtained by the producer by requesting such information from the producer.
To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/new-york-life-insurance-commission-disclosures/
Posted in Insurance | Tagged: Agents and Marketers, Big Apple, Business, Financial services, healthinsurance, insurance, Insurance policy, United States | Leave a Comment »
Posted by William Byrnes on January 7, 2011
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, Business, Customer, Financial services, healthinsurance, insurance, Law of agency, Patient Protection and Affordable Care Act | Leave a Comment »
Posted by William Byrnes on January 6, 2011
Life insurance is often touted as an iron-clad asset protection vehicle since many states exempt life insurance policies from attachment by an insured’s creditors. Life insurance can even provide limited asset protection in bankruptcy.
But life insurance is not a foolproof method of protecting family assets from all creditors, as illustrated by a recent U.S. District Court case. In that case, an insured sued his insurance company and the IRS after the insurance company paid over the cash value of a life insurance policy to the IRS to satisfy a tax levy. The insured’s wife and daughter were the beneficiaries of the life insurance policy, which would have shielded the policy from creditors in many states, including his. 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 asset protection in Advisor’s Journal, see Domestic Asset Protection Trusts: New Chart Ranks the States (CC 10-30).
For in-depth analysis of asset protection, see Advisor’s Main Library: G—Domestic Asset Protection Trusts.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Insurance | Tagged: Asset, Business, Financial services, insurance, Insurance policy, Life, life insurance, United States | Leave a Comment »
Posted by William Byrnes on December 31, 2010
An employer who does not want to, or cannot, institute a qualified pension or profit-sharing plan, or who does not want to extend benefits to all of its full-time employees, can use a “Section 162 plan” to meet its executive compensation needs. A Section 162 plan leverages life insurance to provide supplemental compensation to select employees while also allowing the employer to take an income tax deduction for the premium payments.
In a Section 162 plan, an employer applies for, and pays premiums on, a life insurance policy on its employee’s life. The employee, however, owns the policy and has the right to appoint beneficiaries; the employer does not take an interest in the policy’s death benefit.
As an example of Section 162 plan and its tax advantages, … 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 Section 162 plans, see Advisor’s Main Library: Section 15 C—Executive Bonus – I.R.C. �162 Plan
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Retirement Planning, Uncategorized | Tagged: Business, Compensation and Benefits, Employment, Executive pay, Human Resources, insurance, Profit sharing, Tax advantage | Leave a Comment »
Posted by William Byrnes on December 29, 2010
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Why is this Topic Important to Wealth Managers? We examine the IRS requirements set out in its Publication 587 for determining when a “part” of a home is used and whether that use qualifies as “exclusively and regularly as your principal place of business”.
Yesterday we opened the discussion by what authority of the Code a taxpayer may be allowed to deduct a business expense for use of part of his home in the pursuit of a trade or business. Today we turn to the following questions: What type of residence qualifies for this deduction? And the requirements for determining when a “part” of a home is used and whether that use qualifies as “exclusively and regularly as your principal place of business”.
What type of residence qualifies for this deduction? Many taxpayers narrowly consider that the “home office” deduction only applies for the traditional house with the white picket fence. But the Code’s section does not use the word “home”. Yesterday we noted that Congress chose the phrase “dwelling unit”. So what is a dwelling unit? The Section toward its end contains this definition: “The term ”dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property ….” Thus, taxpayers who are homeowners, condo-owners, renters of apartments, even a boat owner or renter, may potentially leverage this deduction.
What constitutes a “portion” of the dwelling unit? To read this article excerpted above, please access www.AdvisorFX.com
Posted in Taxation | Tagged: Business, Earned Income Tax Credit, Internal Revenue Service, Itemized deduction, tax, Tax credit, Tax deduction, TurboTax | Leave a Comment »
Posted by William Byrnes on December 28, 2010
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Why is this Topic Important to Wealth Managers? Americans are increasingly using their personal residence as their office. This trend has picked up much steam since the financial crisis began. Businesses cut costs during this period by not just allowing, but requiring, employees to telecommute. In fact, government, including the IRS, has also jumped on the bandwagon.
Yesterday we opened the discussion of when may a taxpayer be allowed to deduct a business expense from his gross income. That article noted that Congress grants the authority to the Treasury department to write corresponding “Regulations” to address the administration and enforcement surrounding the ability of taxpayers to take such deductions allowed by the Code. Treasury, being the Internal Revenue Service in this case, promulgated such regulations for Section 162 to guide taxpayers through its morass, and provide some example scenarios and the IRS’ application of the Code to those scenarios.
By example, Treasury’s Regulation for Section 162 states that: “Among the items included in business expenses are management expenses, commissions …, labor, supplies, incidental repairs, operating expenses of automobiles used in the trade or business, traveling expenses while away from home solely in the pursuit of a trade or business …, advertising and other selling expenses, together with 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.”
Home Office Deduction
To read this article excerpted above, please access www.AdvisorFX.com
Posted in Taxation | Tagged: Business, Expense, Home Office, insurance, Internal Revenue Code, Internal Revenue Service, tax, Tax deduction | Leave a Comment »
Posted by William Byrnes on December 27, 2010
Why is this Topic Important to Wealth Managers? As the end of the calendar and personal tax year approaches, Advanced Market Intelligence will focus on end-of-the-tax-year issues that every wealth manager may relay as helpful information to his and her clients.
“How are business expenses reported for income tax purposes?” may initially seem like an easy question for many wealth managers. But normally, the easiness of answering this question is a result of referring to an information pamphlet by a service provider or perhaps a newspaper article. Unfortunately, these public sources of information are not always accurate. Also, because they are trying to present very complex information in understandable terms, these types of sources gloss over finer, yet very important elements, that if known, would impact a decision.
Seldom does the wealth manager take the initiative to undertake his own initial research of the actual rules and how the rules may be applied. Advanced Market Intelligence has been committed to empowering the wealth manager with the necessary information to efficiently find the important rules and provide examples of how the rules are applied to various example scenarios. Thus, let us first turn to the legislative rule applying to business expenses.
The Internal Revenue Code (the “Code”), legislated by Congress, establishes rules regarding ‘if and when’ a taxpayer may choose to deduct certain expenses from income. Congress grants the authority to the Treasury department to write corresponding “Regulations” to address the administration and enforcement surrounding the ability of taxpayers to take such deductions allowed by the Code. Business expenses are one type of such expense Congress has established for a taxpayer to reduce his gross income.
The Code section establishing the ability of a taxpayer to deduct a business expense is Section 162. The first part of the first paragraph of Section 162 reads:
(a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including— …
To read this article excerpted above, please access www.AdvisorFX.com
Read the key information you need to know and relate to your client 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):
Tax Facts 7537. How are business expenses reported for income tax purposes?
Main Library – Section 19. Income Taxes B4—Business Income And Deductions
Posted in Taxation | Tagged: Business, Expense, Fiscal year, income tax, Internal Revenue Code, tax, Tax deduction | 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 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 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 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 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 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 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 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
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 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 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
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