Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Internal Revenue Service’

IRS Gives High-Income Taxpayers a Break on New 3.8% Tax

Posted by William Byrnes on January 2, 2014


The IRS has finally given high-income taxpayers a break with the release of the final regulations governing the new 3.8% tax on net investment income.

These final rules mark a dramatic shift from the IRS’s previous position. By adding flexibility to the rules, the IRS’s unanticipated amendments ease the sting of the investment income tax.

Read Professor Robert Bloink and William Byrnes’ analysis of the shift in the IRS’ position at > Think Advisor <  

tax planning case studies for individuals and small business available on Tax Facts online

Posted in Taxation, Wealth Management | Tagged: , , , , , , , | 3 Comments »

Tax Court Provides Help for Estate Planning Using Gift Tax Valuation

Posted by William Byrnes on November 19, 2013


In the gift tax arena, the value assigned to the transferred property can often make or break your high-net-worth clients’ tax planning strategies, leading many clients to move conservatively through the valuation minefield.

Despite this, the newest strategy to emerge in the world of gift tax valuation can actually allow these wealthy clients to reduce their estate tax liability. Reversing course from a previous line of cases, the Tax Court recently blessed a cutting edge valuation strategy for lifetime gifts that can be used to reduce overall estate tax liability for these clients by simultaneously reducing the bite of the often-overlooked three-year bringback rule—a rule which can cause even the most carefully laid estate plans to fail.

Read William Byrnes and Robert Bloink’s analysis of the tax court case and the three-year bringback rule at > http://www.thinkadvisor.com/2013/10/29/tax-court-provides-help-for-estate-planning-using <

 

Posted in Estate Tax | Tagged: , , , , , , , , | Leave a Comment »

U.S. Tightens Scrutiny of Small Businesses Skirting Obamacare Mandate

Posted by William Byrnes on November 6, 2013


The Affordable Care Act (ACA) mandate that will require employers with more than 50 full-time employees to provide health coverage for those employees or pay a penalty that can reach $3,000 per employee has many small business clients scrambling to plan for years ahead.  Because independent contractors are not counted toward the 50-employee limit, some small business clients may be tempted to reclassify common law employees as independent contractors to avoid the mandate.

Read Professor William Byrnes and Robert Bloink’s analysis of the issues, challenges, pitfalls and solutions for addressing a business’ future in a world of Obama Care at > Think Advisor <

 

Posted in Compliance, Tax Policy | Tagged: , , , , , , , | Leave a Comment »

20% discount code for 400 page analysis of FATCA Compliance

Posted by William Byrnes on October 11, 2013


To purchase LexisNexis® Guide to FATCA Compliance and save 20%, visit the LexisNexis Store.  The link for the 20% discount is:

book coverhttp://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&skuId=sku8140237&catId=cat2370006&prodId=prod19190327&couponId=FATCA13&utm_campaign=1-FATCA13_Author+Byrnes&utm_medium=digital+non-LN&utm_source=partner&utm_content=blog_link2_20pct&utm_term=Print

Over 400 pages of compliance analysis !! now available with the 20% discount code link in this flier –> LN Guide to FATCA_flier.

The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies,  in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions.  A sample chapter from the 25 is available on LexisNexis: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

Analysis by FATCA Experts – 

Kyria Ali, FCCA is a member of the Association of Chartered Certified Accountants (“ACCA”) of Baker Tilly (BVI) Limited.

Michael Alliston, Esq. is a solicitor in the London office of Herbert Smith Freehills LLP.

Ariene d’Arc Diniz e Amaral, Adv.  is a Brazilian tax attorney of Rolim, Viotti & Leite Campos Advogados.

Maarten de Bruin, Esq. is a partner of Stibbe Simont.

Jean-Paul van den Berg, Esq.  is a tax partner of Stibbe Simont.

Amanda Castellano, Esq. spent three years as an auditor with the Internal Revenue Service.

Luzius Cavelti, Esq. is an associate at Tappolet & Partner in Zurich.

Bruno Da Silva, LL.M.  works at Loyens & Loeff, European Direct Tax Law team and is a tax treaty adviser for the Macau special administrative region of the People’s Republic of China.

Prof. J. Richard Duke, Esq. is an attorney admitted in Alabama and Florida specializing over forty years in income and estate tax planning and compliance, as well as asset protection, for high net wealth families.  He served as Counsel to the Ludwig von Mises Institute for Austrian Economics 1983-1989.

Dr. Jan Dyckmans, Esq. is a German attorney at Flick Gocke Schaumburg in Frankfurt am Main.

Arne Hansen is a legal trainee of the Hanseatisches Oberlandesgericht (Higher Regional Court of Hamburg), Germany.

Mark Heroux, J.D. is a Principal in the Tax Services Group at Baker Tilly who began his career in 1986 with the IRS Office of Chief Counsel.

Rob. H. Holt, Esq. is a practicing attorney of thirty years licensed in New York and Texas representing real estate investment companies.

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Denis Kleinfeld, Esq., CPA. is a renown tax author over four decades specializing in international tax planning of high net wealth families.  He is Of Counsel to Fuerst Ittleman David & Joseph, PL, in Miami, Florida and was employed as an attorney with the Internal Revenue Service in the Estate and Gift Tax Division.

Richard L. Knickerbocker, Esq.  is the senior partner in the Los Angeles office of the Knickerbocker Law Group and the former City Attorney of the City of Santa Monica.

Saloi Abou-Jaoude’ Knickerbocker Saloi Abou-Jaoude’ Knickerbocker is a Legal Administrator in the Los Angeles office of the Knickerbocker Law Group concentrated on shari’a finance.

Jeffrey Locke, Esq.  is Director at Navigant Consulting.

Josh Lom works at Herbert Smith Freehills LLP.

Prof. Stephen Polak is a Tax Professor at Thomas Jefferson School of Law’s International Tax & Financial Services Graduate Program where he lectures on Financial Products, Tax Procedure and Financial Crimes. As a U.S. Senior Internal Revenue Agent, Financial Products and Transaction Examiner he examined exotic financial products of large multi-national corporations. Currently, Prof. Polak is assigned to U.S. Internal Revenue Service’s three year National Research Program’s as a Federal State and Local Government Specialist where he examines states, cities, municipalities, and other governmental entities.

Dr. Maji C. Rhee is a professor of Waseda University located in Tokyo.

Jean Richard, Esq.  a Canadian attorney, previously worked for the Quebec Tax Department, as a Senior Tax Manager with a large international accounting firm and as a Tax & Estate consultant for a pre-eminent Canadian insurance company.  He is currently the Vice President and Sr. Wealth Management Consultant of the BMO Financial Group.

Michael J. Rinaldi, II, CPA. is a renown international tax accountant and author, responsible for the largest independent audit firm in Washington, D.C.

Edgardo Santiago-Torres, Esq., CPA, is also a Certified Public Accountant and a Chartered Global Management Accountant, pursuant to the AICPA and CIMA rules and regulations, admitted by the Puerto Rico Board of Accountancy to practice Public Accounting in Puerto Rico, and an attorney.

Hope M. Shoulders, Esq. is a licensed attorney in the State of New Jersey whom has previously worked for General Motors, National Transportation Safety Board and the Department of Commerce.

Jason Simpson, CAMS is the Director of the Miami office for Global Atlantic Partners, overseeing all operations in Florida, the Caribbean and most of Latin America. He has worked previously as a bank compliance employee at various large and mid-sized financial institutions over the past ten years.  He has been a key component in the removal of Cease and Desist Orders as well as other written regulatory agreements within a number of Domestic and International Banks, and designed complete AML units for domestic as well as international banks with over three million clients.

Dr. Alberto Gil Soriano, Esq.  worked at the European Commission’s Anti-Fraud Office in Brussels, and most recently at the Legal Department of the International Monetary Fund’s Financial Integrity Group in Washington, D.C. He currently works at the Fiscal Department of Uría Menéndez Abogados, S.L.P in Barcelona (Spain).

Lily L. Tse, CPA. is a partner of Rinaldi & Associates (Washington, D.C.).

Dr. Oliver Untersander, Esq. is partner at Tappolet & Partner in Zurich.

Mauricio Cano del Valle, Esq. is a Mexican attorney who previously worked for the Mexican Ministry of Finance (Secretaría de Hacienda) and Deloitte and Touche Mexico.  He was Managing Director of the Amicorp Group Mexico City and San Diego offices, and now has his own law firm.

John Walker, Esq. is an accomplished attorney with a software engineering and architecture background.

Bruce Zagaris, Esq. is a partner at the Washington, D.C. law firm Berliner, Corcoran & Rowe, LLP.

Prof. William Byrnes was a Senior Manager then Associate Director at Coopers & Lybrand, before joining academia wherein he became a renowned author of 38 book and compendium volumes, 93 book & treatise chapters and supplements, and 800+ articles.  He is Associate Dean of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Dr. Robert J. Munro is the author of 35 published books is a Senior Research Fellow and Director of Research for North America of CIDOEC at Jesus College, Cambridge University, and head of the anti money laundering studies of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Posted in book, FATCA | Tagged: , , , | Leave a Comment »

Can Clients 1035 an Inherited Annuity?

Posted by William Byrnes on September 6, 2013


2014_tf_on_investments-mAnnuity products are one area in which trends in contract features are constantly changing as insurance companies endeavor to more effectively meet the needs of annuity investors and with the attendant problem that beneficiaries of inherited annuities could end up with antiquated investment products.

This constant evolution of investment trends may have your clients wondering what type of value their annuities will offer beneficiaries after their death. The IRS has just blessed a solution to this planning dilemma by allowing a beneficiary to exchange inherited annuities for another annuity product that more accurately reflects the beneficiary’s investment goals.

Read the complete analysis by William Byrnes and Robert Bloink at > Think Advisor <

Posted in Insurance, Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

IRS’ NEW “HOW TO” VIDEOS FOR FATCA Registration

Posted by William Byrnes on August 27, 2013


For the period from the opening of the FATCA registration website through December 31, 2013, a financial institution (FI) will be able to access its online account to modify or add registration information.

FIs can use the remainder of 2013 to become familiar with the FATCA registration website, to input preliminary information, and to refine that information.  On or after January 1, 2014, each FI will be expected to finalize its registration information by logging into its online account on the FATCA registration website, making any necessary additional changes, and submitting the information as final.

As registrations are finalized and approved in 2014, registering FIs will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN).

The IRS will electronically post the first IRS Foreign Financial Institution (FFI) List by June 2, 2014, and will update the list on a monthly basis thereafter.  To ensure inclusion in the June 2014 IRS FFI List, an FI will need to finalize its registration by April 25, 2014.

Below find a link to IRS instructions, user guide and video materials to assist you and your financial institution with FATCA registration:

FATCA Registration Overview (PDF)
FATCA Registration Online User Guide (PDF)
Tips for Logging into the FATCA Registration System
Instructions for Form 8957 (PDF)
Global Intermediary Identification Number (GIIN) Composition (PDF)

“How-to” videos to assist financial institutions with FATCA registration:

Creating a FATCA account for online registration
Logging into a FATCA Account
Recovering a FATCA ID or resetting a FATCA Access Code
Registration System Common Features and Navigation

 

Posted in FATCA | Tagged: , , , , , , | Leave a Comment »

2 New Tax Facts Books Released

Posted by William Byrnes on August 23, 2013


National Underwriters published 2014 editions of Tax Facts books authored by William Byrnes and Robert Bloink of the graduate tax program.

2014 Tax Facts on Investments

2014 Tax Facts on Insurance & Employee Benefits

“We have included a new section on cross border employment and estate tax issues, captive insurance and alternative risk transfer, reverse mortgages, DOMA, as well as the previously expanding sections on ETFs and on precious metals & collectibles,” William Byrnes said.  “Moreover, we hope to soon announce the newest title of Tax Facts addressing entrepreneurs and their small business tax issues.” 

“Tax Facts Books and the Tax Facts Online portal have built strong following of many thousand of financial planning professionals.  I think financial planning professionals relate to National Underwriter’s approach of contextualizing client problems in a Question – Answer format.”

Both publications are now available as e-books, as an alternative or in combination with print.

Posted in book, Retirement Planning, Taxation, Wealth Management | Tagged: , , , , , , , , , | Leave a Comment »

FATCA Registration Portal Finally Opens

Posted by William Byrnes on August 21, 2013


Update for subscribers of LexisNexis® Guide to FATCA Compliance[1]

FATCA requires that FFIs, through a responsible officer (a.k.a. “FATCA compliance officer”), make regular certifications to the IRS via the FATCA Portal, as well as annually disclose taxpayer and account information for U.S. persons, unless an intergovernmental agreement allows for indirect reporting to the IRS via a foreign government.   On Monday, August 19 the IRS opened its new online FATCA registration system for financial institutions that need to register for compliance with the Foreign Account Tax Compliance Act.[2]  This critical FATCA milestone was supposed to open July 15; however only on July 12 the IRS issued a postponement, as well as a push back of all corresponding impacted milestones and deadlines.

The full text of this article is available on the LexisNexis FATCA http://www.lexisnexis.com/legalnewsroom/tax-law/b/fatcacentral/archive/2013/08/21/the-race-to-register-with-the-irs-online-fatca-system-has-begun.aspx

Posted in Compliance, FATCA, Taxation | Tagged: , , , , , , , | Leave a Comment »

U.S. History of Non-Profit Tax Exemption and Deduction for Donations

Posted by William Byrnes on August 20, 2013


“. . . [w]hen the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’  It is now 585 pages  . . . . Much of this complexity stems from the many sophisticated ways wealthy individuals – using the best advice that money can buy – have found ways to shift their income from high tax brackets to low ones, and in many instances to make themselves completely tax free.  It takes complicated amendments to end complicated devices.” Senator Russell Long, Chairman, Finance Committee

Download this entire article at > William Byrnes’ full-lenth articles on SSRN <

From the turn of the twentieth century, Congress and the states have uniformly granted tax exemption to charitable foundations, and shortly thereafter tax deductions for charitable donations.  But an examination of state and federal debates and corresponding government reports, from the War of Independence to the 1969 private foundation reforms, clearly shows that politically, America has been a house divided on the issue of the charitable foundation tax exemption.  By example, in 1863, the Treasury Department issued a ruling that exempted charitable institutions from the federal income tax but the following year, Congress rejected charitable tax exemption legislation.  However thirty years later, precisely as feared by its 1864 critics, the 1894 charitable tax exemption’s enactment carried on its coat tails a host of non-charitable associations, such as mutual savings banks, mutual insurance associations, and building and loan associations.

Yet, the political debate regarding tax exemption for the non-charitable associations did not nearly rise to the level expended upon that for philanthropic, private foundations established by industrialists for charitable purposes in the early part of the century.  But the twentieth century debate upon the foundation’s charitable exemption little changed from that posited between the 1850s and 1870s by Presidents James Madison and Ulysses Grant, political commentator James Parton and Dr. Charles Eliot, President of Harvard.  The private foundation tax exemption evoked a populist fury, leading to numerous, contentious, investigatory foundation reports from that of 1916 Commission of Industrial Relations, 1954 Reece Committee, 1960 Patman reports, and eventually the testimony and committee reports for the 1969 tax reform.  These reports uniformly alleged widespread abuse of, and by, private foundations, including tax avoidance, and economic and public policy control of the nation.  The private foundation sector sought refuge in the 1952 Cox Committee, 1965 Treasury Report, and 1970 Petersen Commission, which uncovered insignificant abuse, concluded strong public benefit, though recommending modest regulation.

During the charitable exemption debates from 1915 to 1969, Congress initiated and intermittently increased the charitable income tax deduction while scaling back the extent of exemption for both private and public foundations to the nineteenth century norms.  At first, the private foundation’s lack of differentiation from general public charities protected their insubstantially regulated exemption.  But in 1943, contemplating eliminating the charitable exemption, Congress rather drove a wedge between private and public charities.  This wedge allowed the private foundation’s critics to enact a variety of discriminatory rules, such as limiting its charitable deduction from that of public charities, and eventually snowballed to become a significant portion of the 1969 tax reform’s 585 pages.

This article studies this American political debate on the charitable tax exemption from 1864 to 1969, in particular, the debate regarding philanthropic, private foundations.  The article’s premise is that the debate’s core has little evolved since that between the 1850s and 1870s. To create perspective, a short brief of the modern economic significance of the foundation sector follows.  Thereafter, the article begins with a review of the pre- and post-colonial attitudes toward charitable institutions leading up to the 1800s debates, illustrating the incongruity of American policy regarding whether and to what extent to grant charities tax exemption.  The 1800s state debates are referenced and correlated to parts of the 1900s federal debate to show the similarity if not sameness of the arguments against and justifications for exemption.  The twentieth century legislative examination primarily focuses upon the regulatory evolution for foundations.  Finally, the article concludes with a brief discussion of the 1969 tax reform’s changes to the foundation rules and the significant twentieth century legislation regulating both public and private foundations.

Download this entire article at > William Byrnes’ full-lenth articles on SSRN <

Posted in Tax Exempt Orgs, Tax Policy, Taxation | Tagged: , , , , , , , , | Leave a Comment »

Employees and Independent Contactors

Posted by William Byrnes on August 9, 2013


Why is this Topic Important to Financial Professionals? Many small business owners are faced with issues surrounding Form 1099 and how the rules apply to their businesses.  

What are some distinctions of the employees versus independent contractors?

An independent contractor, in general, has a majority of control over the details of his job function and only the end result is dictated by the company or individual who hires.  This is what is commonly known as “the degree of behavioral control.”  Another category used by the IRS and the courts to determine the status of an individual as either an employee or independent contractor is “financial control”.  Financial control involves examining the financial relationship between the parties such as reimbursement, and/or if any materials or space has been provided to accomplish the job.  Other relationship factors such as having a contract or agreement between the parties, as well as the terms of any contract, must also be examined in determining the employment status of the individual.

One of the issues that is often overlooked in the area of an employee relationship instead of an independent contractor relationship is that employees have X number of hours to dedicate to employment each week, whether that number is 40, 50, or anything else that an employment agreement might state.  Independent contracts are often not required to expend a set number of hours to accomplish a task, but instead enough hours to accomplish the task.

Another relevant issue to be considered in determining which of the two employment relations exist is that of termination.  An “At-Will” employee can normally be terminated and generally has no cause for a breach of contract and cannot sue for damages.  An independent contractor cannot usually be terminated without a breach of contract.

Tax Distinctions

Taxation of the two dissimilar positions is significantly different.  Independent contractors essentially work for themselves, and the business that pays them is, in effect, a client.  Generally, and independent contractor will file a tax return as a sole proprietor or closely held corporation, such as a Subchapter S Corporation.  An employee is subject to federal income tax withholding and the employer is subject to payroll taxes, included in the general W-2 process.

Independent contractors, like other businesses, recognize revenue and expenses. The independent contractor usually receives a Form 1099 from the source that pays him.  The Code and Regulations state that when a trade or business pays an individual for certain “services” over $600 that a Form 1099 is required to be filed with the Secretary of the Treasury.[1] And just as other businesses realize “legislative graces of Congress,” such as Section 162 deductions, the sole proprietor too may have expenses that generally qualify as trade or business expenses.

For a detailed analysis regarding independent contractors, see Tax Facts Q 814. How are business expenses reported for income tax purposes?


[1] Internal Revenue Code Section (IRC) 6041, Treasury Regulations (TR) 1.6041-1(a)(1)(i), TR 1.6041-1(a)(2).  

Posted in Taxation, Wealth Management | Tagged: , , , , , , , , | Leave a Comment »

Limited Liability Companies: A New Best Friend

Posted by William Byrnes on August 5, 2013


Why is this Topic Important to Financial Professionals?  Look in most local business journals that report on the formation of new business entities and you will see 95% of new businesses are formed as an “L.L.C.”  This company structure is the primary one for entrepreneurs, professionals, and small businesses.  However, after twenty years of significant usage, many questions about this form of entity are still novel.  The financial professional should be able to explain to a client the basics of the Limited Liability Company.

What is an LLC?

Limited Liability Companies (commonly called “LLCs”) are state statute sanctioned legal business entities.  The business entity is similar to a limited liability partnership except that it has members and not partners (no need for general partners).  Moreover, some states allow for only one member, known as a single-member LLC, an option not available in partnership entities that require at least two partners.  The members can be persons but may be other business entities, such that an LLC can be a member of another LLC.

The LLC can be established and managed so as to offer the benefits of a corporation such as limited liability and continuation after a member’s death, but without the impact of corporate taxation.

What is the benefit of an LLC?

The LLC properly managed provides for the protection of personal financially liability in connection with the business liability.  Proper management generally includes following the annual requirements of corporation law, such as holding an annual directors and members meeting, and recording corporate minute (this will be discussed in future blogticles).

Additionally, the LLC avoids double taxation because of it can elect to be a “pass-through” entity for federal and state tax purposes – like a partnership or a sole-proprietorship is treated.

Also, most LLCs do not have a restriction on the number of members as S-Corps have (albeit rarely will the number of members or shareholders be an issue for a financial professional’s client).  To learn more details and nuances of each business structure see the AUS Main Section 10. Basics Of Business Insurance, A—Forms Of Business Organization.  More detail on LLCs specifically is provided in AUS Main Section 14.1, I—The Limited Liability Company (LLC).

 

What are some limitations of the LLC?

Aside from the fact that LLCs have essentially developed as a hybrid of older forms of business organizations, and are relatively new in the history of corporation law.  The LLC is not a corporation in the traditional sense of the word.

Sometimes businesses start as an LLC but expand to a point of eventually considering receiving outside equity with the goal of a public offering such as listing on a stock exchange.  The LLC is not suitable for “going public”.  Thus at the stage of soliciting equity investment for a business a client may have outgrown the LLC and should convert into a C-Corporation (a topic that will be addressed in a future blogticle).

The Federal Government allows the business owner(s) of the LLC to choose how the LLC will be characterized for tax purposes.  The LLC may be taxed as a Corporation (both Subchapter C and S), partnership or sole-proprietorship. This process is generally referred to as “Check the Box”.[1] The IRS Check the Box Form is Number 8832[2] and the business owners literally check one of the included boxes on that form and then file the corresponding tax returns.

What are some other uses of LLCs?

LLCs are used in many transactions by high-net worth client.  Sometimes clients use an LLC in place of a trust in the irrevocable life insurance trust (commonly called an “ILIT”) structure.  By example, in a situation where a client wants less restriction on the direction of the assets of the vehicle, the LLC is a more popular choice than the ILIT.  As a result, the LLC has become a common tool for the financial planner.  A detailed discussion of one of these transactions is examined in the AUS Main Section 14.1, I-The Limited Liability Company (LLC). “LLC as an Alternative to a Life Insurance Trust”.

For a detailed analysis of the tax and non-tax Advantages of a Close Corporation see AdvisorFX Main Library Section 14. Close Corporations I—The Limited Liability Company (LLC) http://www.advisorfx.com/articles/f14_1_2_2080.aspx?action=13

Tomorrow’s blogticle will address Accounting for Corporations and Limited Liability Companies and How it Relates to Insurance.


[1] Treasury Regulations Section §301.7701-3.

 

[2] Internal Revenue Service Form 8832, http://www.irs.gov/pub/irs-pdf/f8832.pdf.

Posted in Wealth Management | Tagged: , , , , , , , | 2 Comments »

The Value of Variable Life Insurance: Surrender Charges and Fair Market Value

Posted by William Byrnes on July 25, 2013


The U.S. Court of Appeals for the Ninth Circuit recently affirmed the Tax Court’s position on the use of surrender charges in the valuation equation when a nonqualified employee benefit plan that holds a life insurance policy distributes that policy to a taxpayer upon winding up of the plan.

When these life insurance policies are distributed to the taxpayer-employees under such a plan, the taxpayers are responsible for paying taxes on the value of the policies. According to the IRS, the policy value equals the cash value of the policy without regard to any surrender charges. So what do your clients have to include in income if the actual cash surrender value of their life insurance policy is negative?

The Facts

Read the full analysis at ThinkAdvisor – http://www.thinkadvisor.com/2013/05/28/the-value-of-variable-life-insurance-surrender-cha

Posted in Estate Tax, Taxation, Uncategorized, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

The Not-So-Irrevocable Trust: Unlocking Trust Assets

Posted by William Byrnes on July 18, 2013


The “irrevocable” label might have some clients feeling like they are locked into previously established irrevocable trusts for life, which might not always be the case. There are many reasons why a client might remain interested in preserving an irrevocable trust, but after the fiscal cliff deal made the generous $5 million estate tax exemption and spousal portability permanent, there are equally strong reasons why a client might prefer to terminate. …

The choice to terminate will force clients to reevaluate insurance and other trust held assets and lead to what are often long overdue replacement or reallocation discussions.

When Can an Irrevocable Trust Be Terminated?

Read the full analysis at ThinkAdvisorhttp://www.thinkadvisor.com/2013/06/17/the-not-so-irrevocable-trust-unlocking-trust-asset

 

Posted in Estate Tax, Taxation, Trusts, Wealth Management | Tagged: , , , , , , , , , , | Leave a Comment »

LexisNexis® Guide to FATCA Compliance release …

Posted by William Byrnes on May 3, 2013


Over 400 pages of compliance analysis !! now available with the 20% discount code link in this flier –> LN Guide to FATCA_flier.

The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies,  in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions.  A sample chapter from the 25 is available on LexisNexis: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

book coverContributing FATCA Expert Practitioners

Kyria Ali, FCCA is a member of the Association of Chartered Certified Accountants (“ACCA”) of Baker Tilly (BVI) Limited.

Michael Alliston, Esq. is a solicitor in the London office of Herbert Smith Freehills LLP.

Ariene d’Arc Diniz e Amaral, Adv.  is a Brazilian tax attorney of Rolim, Viotti & Leite Campos Advogados.

Maarten de Bruin, Esq. is a partner of Stibbe Simont. 

Jean-Paul van den Berg, Esq.  is a tax partner of Stibbe Simont.

Amanda Castellano, Esq. spent three years as an auditor with the Internal Revenue Service.

Luzius Cavelti, Esq. is an associate at Tappolet & Partner in Zurich.

Bruno Da Silva, LL.M.  works at Loyens & Loeff, European Direct Tax Law team and is a tax treaty adviser for the Macau special administrative region of the People’s Republic of China.

Prof. J. Richard Duke, Esq. is an attorney admitted in Alabama and Florida specializing over forty years in income and estate tax planning and compliance, as well as asset protection, for high net wealth families.  He served as Counsel to the Ludwig von Mises Institute for Austrian Economics 1983-1989.

Dr. Jan Dyckmans, Esq. is a German attorney at Flick Gocke Schaumburg in Frankfurt am Main.

Arne Hansen is a legal trainee of the Hanseatisches Oberlandesgericht (Higher Regional Court of Hamburg), Germany.

Mark Heroux, J.D. is a Principal in the Tax Services Group at Baker Tilly who began his career in 1986 with the IRS Office of Chief Counsel.

Rob. H. Holt, Esq. is a practicing attorney of thirty years licensed in New York and Texas representing real estate investment companies.

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Denis Kleinfeld, Esq., CPA. is a renown tax author over four decades specializing in international tax planning of high net wealth families.  He is Of Counsel to Fuerst Ittleman David & Joseph, PL, in Miami, Florida and was employed as an attorney with the Internal Revenue Service in the Estate and Gift Tax Division.

Richard L. Knickerbocker, Esq.  is the senior partner in the Los Angeles office of the Knickerbocker Law Group and the former City Attorney of the City of Santa Monica.

Saloi Abou-Jaoude’ Knickerbocker Saloi Abou-Jaoude’ Knickerbocker is a Legal Administrator in the Los Angeles office of the Knickerbocker Law Group concentrated on shari’a finance.

Jeffrey Locke, Esq.  is Director at Navigant Consulting.

Josh Lom works at Herbert Smith Freehills LLP.

Prof. Stephen Polak is a Tax Professor at Thomas Jefferson School of Law’s International Tax & Financial Services Graduate Program where he lectures on Financial Products, Tax Procedure and Financial Crimes. As a U.S. Senior Internal Revenue Agent, Financial Products and Transaction Examiner he examined exotic financial products of large multi-national corporations. Currently, Prof. Polak is assigned to U.S. Internal Revenue Service’s three year National Research Program’s as a Federal State and Local Government Specialist where he examines states, cities, municipalities, and other governmental entities.

Dr. Maji C. Rhee is a professor of Waseda University located in Tokyo.

Jean Richard, Esq.  a Canadian attorney, previously worked for the Quebec Tax Department, as a Senior Tax Manager with a large international accounting firm and as a Tax & Estate consultant for a pre-eminent Canadian insurance company.  He is currently the Vice President and Sr. Wealth Management Consultant of the BMO Financial Group.

Michael J. Rinaldi, II, CPA. is a renown international tax accountant and author, responsible for the largest independent audit firm in Washington, D.C.

Edgardo Santiago-Torres, Esq., CPA, is also a Certified Public Accountant and a Chartered Global Management Accountant, pursuant to the AICPA and CIMA rules and regulations, admitted by the Puerto Rico Board of Accountancy to practice Public Accounting in Puerto Rico, and an attorney.

Hope M. Shoulders, Esq. is a licensed attorney in the State of New Jersey whom has previously worked for General Motors, National Transportation Safety Board and the Department of Commerce.

Jason Simpson, CAMS is the Director of the Miami office for Global Atlantic Partners, overseeing all operations in Florida, the Caribbean and most of Latin America. He has worked previously as a bank compliance employee at various large and mid-sized financial institutions over the past ten years.  He has been a key component in the removal of Cease and Desist Orders as well as other written regulatory agreements within a number of Domestic and International Banks, and designed complete AML units for domestic as well as international banks with over three million clients.

Dr. Alberto Gil Soriano, Esq.  worked at the European Commission’s Anti-Fraud Office in Brussels, and most recently at the Legal Department of the International Monetary Fund’s Financial Integrity Group in Washington, D.C. He currently works at the Fiscal Department of Uría Menéndez Abogados, S.L.P in Barcelona (Spain).

Lily L. Tse, CPA. is a partner of Rinaldi & Associates (Washington, D.C.).

Dr. Oliver Untersander, Esq. is partner at Tappolet & Partner in Zurich.

Mauricio Cano del Valle, Esq. is a Mexican attorney who previously worked for the Mexican Ministry of Finance (Secretaría de Hacienda) and Deloitte and Touche Mexico.  He was Managing Director of the Amicorp Group Mexico City and San Diego offices, and now has his own law firm. 

John Walker, Esq. is an accomplished attorney with a software engineering and architecture background.

Bruce Zagaris, Esq. is a partner at the Washington, D.C. law firm Berliner, Corcoran & Rowe, LLP. 

Prof. William Byrnes was a Senior Manager then Associate Director at Coopers & Lybrand, before joining academia wherein he became a renowned author of 38 book and compendium volumes, 93 book & treatise chapters and supplements, and 800+ articles.  He is Associate Dean of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Dr. Robert J. Munro is the author of 35 published books is a Senior Research Fellow and Director of Research for North America of CIDOEC at Jesus College, Cambridge University, and head of the anti money laundering studies of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Posted in Compliance, Estate Tax, Financial Crimes, information exchange, Money Laundering, OECD, Reporting, Tax Policy, Taxation, Wealth Management | Tagged: , , , , , , | 1 Comment »

LexisNexis® Guide to FATCA Compliance

Posted by William Byrnes on March 1, 2013


The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies, from North and South America, Europe, South Africa, and Asia, and in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. Thus, the challenges of the FATCA Compliance Officer are approached from several perspectives and contextual backgrounds.

This edition will provide the financial enterprise’s FATCA compliance officer the tools for developing a best practices compliance strategy, starting with determining what information is needed for planning the meetings with outside FATCA experts.

This 330 page Guide contains three chapters written specifically to guide a financial institution’s lead FATCA compliance officer in designing a plan of internal action within the enterprise and interaction with outside FATCA advisors with a view of best leveraging available resources and budget [see Chapters 2, 3, and 4].

This Guide includes a practical outline of the information that should be requested by, and provided to, FATCA advisors who will be working with the enterprise, and a guide to the work flow and decision processes.

Click here to pre-order the LexisNexis® Guide to FATCA Compliance!  Remember that only US customers can buy on the US Lexis store.

Chapter 1 Introduction
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 5 FBAR & 8938 FATCA Reporting
Chapter 6 Determining U.S. Ownership Under FATCA
Chapter 7 Foreign Financial Institutions
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FACTA and the Insurance Industry
Chapter 10 Withholding and Qualified Intermediary Reporting
Chapter 11 Withholding and FATCA
Chapter 12 ”Withholdable” Payments
Chapter 13 Determining and Documenting the Payee
Chapter 14 Framework of Intergovernmental Agreements
Chapter 15 Analysis of Current Intergovernmental Agreements
Chapter 16 UK-U.S. Intergovernmental Agreement and Its Implementation
Chapter 17 Mexico-U.S. Intergovernmental Agreement and Its Implementation
Chapter 18 Japan-U.S. Intergovernmental Agreement and Its Implementation
Chapter 19 Switzerland-U.S. Intergovernmental Agreement and Its Implementation
Chapter 20 Exchange of Tax Information and the Impact of FATCA for Germany
Chapter 21 Exchange of Tax Information and the Impact of FATCA for The Netherlands
Chapter 22 Exchange of Tax Information and the Impact of FATCA for Canada
Chapter 23 Exchange of Tax Information and the Impact of FATCA for The British
Virgin Islands
Chapter 24 European Union Cross Border Information Reporting
Chapter 25 The OECD, TRACE Program, FATCA and Beyond
Index

Posted in Compliance, information exchange, OECD, Reporting, Tax Policy, Taxation | Tagged: , , , , , , , | 1 Comment »

Treasury & IRS Issue Final FATCA Regulations

Posted by William Byrnes on January 21, 2013


Treasury Advances Efforts to Secure International Participation, Streamline Compliance, and Prepare for Implementation of the Foreign Account Tax Compliance Act (January 17, 2013 U.S. Treasury Department of Public Affairs)

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) on January 17, 2013 issued comprehensive final regulations implementing the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion.

These regulations provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.

The final regulations issued today:
 Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all nonexempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.

 Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.

 Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by nonfinancial entities.

 Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations:

(1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds;

(2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and

(3) clarify the types of passive investment entities that must be identified and reported by financial institutions.

 Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.

Progress on International Coordination, Including Model Intergovernmental Agreements

Since the proposed regulations were published on February 15, 2012, Treasury has collaborated with foreign governments to develop two alternative model intergovernmental agreements that facilitate the effective and efficient implementation of FATCA. These models serve as the basis for concluding bilateral agreements with interested jurisdictions and help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA’s policy objectives, and further reduces burdens on FFIs located in partner jurisdictions. Seven countries have already signed or initialed these agreements.

Today, Treasury announced for the first time that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.

Additional Background on the Model Agreements
On July 26, 2012, Treasury published its first model intergovernmental agreement (Model 1 IGA). Instead of reporting to the IRS directly, FFIs in jurisdictions that have signed Model 1 IGAs report the information about U.S. accounts required by FACTA to their respective governments who then exchange this information with the IRS.  Treasury also developed a second model intergovernmental agreement (Model 2 IGA) published on November 14, 2012. A partner jurisdiction signing an agreement based on the Model 2 IGA agrees to direct its FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS.

These agreements do not offer an exemption from FATCA for any jurisdiction but instead offer a framework for information sharing pursuant to existing bilateral income tax treaties. Under both models, all financial institutions in a partner jurisdiction that are not otherwise excepted or exempt must report the information about U.S. accounts required by FATCA. Therefore, the IRS receives the same quality and quantity of
information about U.S. accounts from FFIs in jurisdictions with IGAs as it receives from FFIs applying the final regulations elsewhere, but these agreements help streamline reporting and remove legal impediments to
compliance.

Background on FATCA

FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers,
or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to avoid withholding under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

 Identify U.S. accounts,
 Report certain information to the IRS regarding U.S. accounts, and
 Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

Posted in Compliance, Financial Crimes, Money Laundering, Reporting, Tax Policy | Tagged: , , , , , , , | Leave a Comment »

IRS Quashes Conversion Treatment for Basket Option Contracts

Posted by William Byrnes on March 16, 2012


Long-term gains yield more favorable tax costs than short-term gains. Short-term gains carry an additional 20% tax cost over long-term gains, encouraging the manufacturing of transactions designed to convert short-term to long-term gains. Unfortunately, these transactions attract undue attention from the IRS and are often disregarded by the Service. The IRS recently considered the tax treatment of one of these gain-recharacterization schemes, a basket option contract, in a generic legal advice memorandum (AM 2010-005).

The IRS altered its categorization of  the contract, viewing it as if the investor purchased the securities in a margin account, paying cash equal to 10% of the value of the securities and borrowing 90% of the value from the investment bank. Just as was the case with the “option,” the investor had almost total control over investment of the securities and would reap all appreciation and income from the securities, less interest and brokerage fees.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of options, see Advisor’s Main Library: G—Options and Futures.

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

IRS Global Settlement for Millennium 419

Posted by William Byrnes on March 6, 2012


A massive increase of lawsuits and IRS investigations have surrounded the Millennium Multiple Employer Welfare Benefit Plan for years, with plan participants claiming it was nothing but a fraudulent device with sole purpose of generating millions in commissions for its agent promoters. There are accusations of taking a total of $500 million from 500 clients by inducing them to participate in a plan that offered no tax or other benefits to its participants.

Several lawsuits are still pending against the Millennium Plan, but at least one aspect of the alleged scam plan has been resolved. The IRS announced on July 5 that it reached an agreement with the Millennium Multiple Employer Welfare Benefit Plan (“Millennium Plan”). After numerous fraud allegations and the IRS abusive tax shelter investigation, the Millennium Plan filed for Chapter 11 bankruptcy.

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 welfare benefits plans in Advisor’s Journal, see Tax Courts Holds Employee Taxable for Value of Life Insurance Owned by Welfare-Benefit & Deductions for Life Insurance Premium Payments to Welfare Benefit Plan Denied (CC 10-29).

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Battle Brewing Over Employments Status of Financial Advisors

Posted by William Byrnes on February 7, 2012


Are you an employee or independent contractor of your firm? If you’re doing business in California and get the classification wrong, you could be in for criminal charges and up to a $25,000 fine.

California State Bill 459—which would impose strict recordkeeping requirements and severe penalties on firms that misclassify employees as independent contractors—passed the state senate on June 2. The bill moved to the Assembly and went on to a hearing at the Assembly Committee on Labor and Employment two weeks later. The bill is expected to come to a vote in the Assembly later this summer.

Under the bill, firms that mischaracterize employees as independent contractors can be subject to fines of up to $25,000. They also will be required to keep records verifying independent contractor status for at least two years or face a fine of $500 per employee and misdemeanor criminal charges.

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 in-depth analysis of income taxation, see Advisor’s Main Library: Income Taxes.

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Foreign Account Compliance: Are Foreign Policies Included?

Posted by William Byrnes on December 20, 2011


The Foreign Account Tax Compliance Act (FATCA) was designed as a comprehensive measure to combat offshore tax evasion—a noble aim. However, FATCA’s comprehensiveness is also a burden for many in the financial services industry, especially insurance carriers and producers. In comments to regulators, one foreign life insurance trade organization, the Association of International Life Offices (AILO), recently called FATCA’s requirements “onerous and disproportionate to the risk involved.”

Passed as part of H.R. 2847, the Hiring Incentives to Restore Employment Act (HIRE Act) on March 18, 2010, FATCA combats tax evasion by requiring disclosure from foreign institutions about accounts held by people, including U.S. citizens, and institutions risk being subject to U.S. tax. Many life insurance and annuity contracts are classified “accounts” under the Act, although FATCA doesn’t generally apply to property, casualty, and term life insurance contracts.

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 FATCA in Advisor’s Journal, see IRS Proposed FATCA Guidance Expands Offshore Compliance Initiatives (CC 10-52) & Offshore’s Limited Shelf Life (CC 10-47).

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

IRS Provides FBAR Answers

Posted by William Byrnes on November 11, 2011


Failure to file an FBAR (Report of Foreign Bank and Financial Accounts) can result in harsh consequences. The report is that fines of up to $500,000 and 10 years imprisonment can be rendered. Therefore, the need to for you and your clients with foreign financial accounts (FFAs) to familiarize yourselves with the Treasury’s escalating FBAR rules. Unfortunately, understanding the FBAR rules has not always been a straightforward proposition.

Until recently, the FBAR requirements were shrouded in mystery; but with the release of  the last FBAR regulations earlier this year, the rules are finally clear. Furthermore, important clarifications  were made by the IRS at a June 1 webcast.

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 FBAR in Advisor’s Journal, see Do Your Clients’ International Assets Create Criminal Tax Exposure? (CC 11-73).

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

How to Lose a Charitable Deduction

Posted by William Byrnes on October 21, 2011


As an advisor, your clients look to you for competent advice in planning their charitable giving. It would be terrible to find out that the gift you thoughtful suggest cannot be deducted due to an avoidable paperwork mistake. Although the IRS sometimes forgives these minor errors, others are unforgivable, as illustrated in recent IRS email advice.

The IRS was not so forgiving with a taxpayer, who made what would otherwise qualify as a tax-deductible charitable gift. The problem was that the taxpayer “failed to get a contemporaneous written acknowledgment” from the charitable organization. In its advice the IRS said it will deny the taxpayer’s charitable deduction even if the taxpayer takes remedial measures and the charity amends its Form 990 (Return of Organization Exempt from Income Tax) to acknowledge the donation and include the information required by the Code.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of charitable deductions in Advisor’s Journal, see Qualified Charitable Distributions from an IRA (CC 11-03) & IRS Takes Qualified IRA Charitable Distributions off the Table for 2010 (CC 11-15).

 

For in-depth analysis of the charitable deduction under Section 170, see Advisor’s Main Library: B6—The Income Tax Charitable Deduction—I.R.C. §170.

Posted in Tax Policy, Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Tax Court Confirms that Surrender Charges Reduce Value of Life Insurance Policy

Posted by William Byrnes on September 30, 2011


The Tax Court recently determined that the fair market value (FMV) of a life insurance policy distributed by a terminated 419 welfare benefit plan is reduced by surrender charges. [Lowe v. C.I.R., T.C. Memo. 2011-106 (2011)].

This ruling strengthens the Tax Court’s position on surrender charges that was enunciated in Schwab v. Commissioner [Michael P. Schwab et ux. v. C.I.R., 136 T.C. No. 6 (2011)]. The IRS continues to challenge taxpayers who apply surrender charges to reduce or eliminate their tax liability when a policy is distributed to them by a welfare benefit plan. However, this ruling adds another degree of certainty to the FMV calculation.

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 Tax Court rulings in Advisor’s Journal, see Tax Court Revives Partnership Self-Employment Tax Debate (CC 11-56).

Posted in Insurance, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Pensions Turn to Death Bonds

Posted by William Byrnes on September 28, 2011


It’s a given that most of us want to extend our lives as long as possible. But our ever-increasing life spans can financially strain pension funds and others that are contingent upon us dying to keep their books balanced.

Pension funds face severe longevity risk. If pensioners live longer than expected, payouts from the funds could eclipse the estimated cost of keeping the funds stable. Worldwide, $17 trillion of pension funds – $23 trillion in assets – is exposed to longevity risk.

But the big banks—including Goldman Sachs, JPMorgan Chase, and Deustsche Bank—are coming to the rescue by packaging that longevity risk and selling it to investors; and they’re counting on investors being interested in gambling on death.

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 life insurance contracts in Advisor’s Journal, see IRS Guidance Provides Safe Harbor for Policies Maturing After Age 100 (CC 10-51).

For in-depth analysis of pension plans and other qualified employee plans, see Advisor’s Main Library: O – ERISA – FAQs.

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

IRS QTIP Ruling: Perils of Future Changes

Posted by William Byrnes on August 25, 2011


Clients often want to use Qualified Terminal Interest Property trusts (QTIPs) to separate certain funds to care for a surviving spouse, while retaining some measure of control over the general distribution of the funds—whether they will be distributed to children or a charity. But navigating the QTIP rules as client’s circumstances naturally endure change can be cumbersome.  The danger exists when errors that seem trivial, result in eliminating any transfer tax benefit of the trust.

A recent IRS private letter ruling (PLR 201117005) provides us with a good reminder of the QTIP rules and an example of creative QTIP planning that provides the surviving spouse with adequate lifetime income while giving the grantor (and the surviving spouse) a degree of post-death control over disposition of the trust assets.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber)

For a graphic illustration of the QTIP trust, see the Concepts Illustrated practice aid at G—Credit Shelter Trust and QTIP Trust.

For coverage of QTIPs and other techniques useful in estate planning for blended families, see the Advisor’s Journal article Estate Planning for Blended Families (CC 07-16).

For in-depth analysis of marital deduction planning, see Advisor’s Main Library: G—The Marital Deduction.

Posted in Uncategorized | Tagged: , , , , , , , | Leave a Comment »

New Cancellation of Debt Rules Leave Grantors on the Hook

Posted by William Byrnes on August 19, 2011


The collapse of the secondary market for life insurance during the recent financial crisis left a lot of trusts anxious to dispose of large face value life insurance policies. Trusts that handed back policies in satisfaction of premium finance loans were then struck, along with their grantors, with massive tax bills for what is known as cancellation of indebtedness or cancellation of debt (COD) income.

The IRS recently released proposed regulations that address the income tax treatment of cancellation of debt income of trusts. Although this highly technical area of the law may not be of interest to lay audiences, it is a vital aspect for advisors selling high-value life insurance policies.

 

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 an interesting case involving a premium financed policy in Advisor’s Journal, see Lawsuit Seeks to Hold Insurer Responsible for Suspicious Death (CC 10-101).

For in-depth analysis of life settlements (which can be structured as a premium finance transaction), see Advisor’s Main Library: B—The Life Settlement Industry.

Posted in Wealth Management | Tagged: , , , , , , , | Leave a Comment »

IRS High Net Worth Initiative: Fearsome Beast or Paper Tiger?

Posted by William Byrnes on August 16, 2011


The IRS commenced the Large Business and International Division’s high-wealth industry group (“HNW Initiative”) in October 2009 with the aim of examining high-net worth individuals for income tax compliance. But the Service may be “using more rhetoric than resources,” according to Syracuse University’s Transactional Records Access Clearinghouse (TRAC). TRAC’s April 14 report, based on information compiled from public records, accuses the IRS of having “very skimpy” audit goals for the HNW initiative.

TRAC’s orginal goal was to audit a mere 122 returns for the 2011 fiscal year. However, according to reports, TRAC will fall far short of this modest benchmark, and instead only audit 19% of the projected returns for the first six months of the year.

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 Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Aggressive IRS Gift Tax Audit Initiative: John Does Summons

Posted by William Byrnes on July 29, 2011


In recent years, the IRS has increased  its search for taxpayers who fail to disclose a gift tax return for reportable transactions. Now, the Justice Department’s Tax Division is getting in on the action, initiating an unprecedented fishing expedition and scouring state government records for information that may lead to taxpayers who have failed to file a gift tax return.

The Justice Department hopes to collect the identities of taxpayers who have gifted real property to relatives without reporting the transaction to the IRS. 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, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Tax Court Revives Partnership Self Employment Tax Debate

Posted by William Byrnes on July 21, 2011


The Tax Court has reopened the question of whether status as a limited partner entitles them to an exemption from self-employment taxes—an issue that’s been idle for over 13 years.  The Tax Court recently declared that status as a limited partner does not necessarily exempt a partner from self-employment taxes. Instead, the exemption is derivative on how substantial of a role the partner played in the partnership business. 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 small businesses in Advisor’s Journal, see IRS Announces Lenient Lien Program for Small Business (CC 11-48)

For in-depth analysis of partnership taxation, see Advisor’s Main Library: H–Partnership Taxation

Posted in Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Tax-Free Exchange Can Erase Policy’s Tax Benefits

Posted by William Byrnes on July 18, 2011


A recent IRS Revenue Ruling provides an important reminder for us of the rules for deducting interest that’s paid or accrued on a business life insurance policy loans. Knowing how and when policy loan interest is properly deductible can mean the difference between closing the sale in the first instance and an IRS audit down line if these rules are ignored.

In general, interest paid on a life insurance policy loan is not deductible for income tax purposes; but there are some exceptions for life insurance purchased for business purposes. The deductibility of policy loan interest has changed significantly over the past 20 years, so an intimate knowledge of the specifics is imperative when selling or transacting on a policy that’s issued to a business.  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 Advisor’s Journal coverage of the exception to the pro rata limitation on interest deduction, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41).

For in-depth analysis of corporate-owned life insurance, see Advisor’s Main Library: D—Deductibility Of Business Insurance Premiums, E—Premiums As Taxable Income To The Insured & F—Taxability Of Corporate Owned Life Insurance Proceeds At Death.

Posted in Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

 
%d bloggers like this: