Posts Tagged ‘tax’
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
Contributing 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: Compliance, FATCA, Internal Revenue Service, LexisNexis, tax, Tax Evasion, tax reporting | 1 Comment »
Posted by William Byrnes on January 2, 2013
In the first moments of 2013, Congress eased the fiscal cliff tax increases for taxpayers earning less than $450,000 by enacting the American Taxpayer Relief Act (Act), permanently extending the Bush-era income tax cuts for this group. … While the legislation extends the current income tax rates for taxpayers earning less than $450,000 ($400,000 for single filers) per year, it allowed the Bush-era tax cuts to expire for all higher-income taxpayers. Similarly, taxes on capital gains, dividends, and estates were increased for the wealthiest taxpayers.
How Were Income Taxes Increased by the Fiscal Cliff Compromise?
How Does the Act Impact the Current System for Tax Deductions and Exemptions?
Were Capital Gains and Dividend Rates Impacted by the Act?
How Are Estate and Gift Tax Rates Affected?
What Other Changes Were Made?
Beyond the Act: What is the “Investment Income Tax”?
Planning Under the Act: How Should Clients Plan for Higher Taxes in 2013?
Read the analysis at National Underwriters’ Advanced Markets – http://nationalunderwriteradvancedmarkets.com/articles/fc010113-a.aspx?action=16
Posted in Estate Tax, Retirement Planning, Tax Policy, Taxation, Wealth Management | Tagged: Bush Tax Cuts, Capital gain, fiscal cliff, Fiscal conservatism, income tax, tax, Tax rate, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on December 5, 2012
2013 Tax Facts on Investments in PRINT and E-Book format 
provides clear, concise answers to often complex tax questions concerning investments. Pertinent planning points are provided throughout.
Organized in a convenient Q&A format to speed you to the information you need, 2013 Tax Facts on Investments delivers the latest guidance on:
- Mutual Funds, Unit Trusts, REITs
- Incentive Stock Options
- Options & Futures
- Real Estate
- Stocks, Bonds
- Oil & Gas
- Precious Metals & Collectibles
- And much more!
Key updates for 2013:
- New section on captive insurance
- New section on reverse mortgages
- Expanded section on ETFs
- Expanded section on precious metals & collectibles
- More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
- Real Estate
- Limited Partnerships
- Stocks
- Interest and Expenses
- Options
- Mutual Funds
Posted in Estate Tax, Retirement Planning, Taxation, Trusts, Wealth Management | Tagged: 2013 Tax Facts, Business, Economy, Exchange-traded fund, futures real estate, incentive stock options, Investing, Investment, Mutual fund, Precious metal, Real estate investment trust, real estate limited partnerships, stocks bonds, tax, Wealth Management | Leave a Comment »
Posted by William Byrnes on November 26, 2012
… the PPACA provisions proposing an additional 3.8 percent tax on investment income will shortly become effective … and your high-income clients will need advice on how to reposition their investments today to minimize its effect. Read the full article at http://www.lifehealthpro.com/2012/07/19/preparing-clients-for-the-reality-of-ppacas-invest
Posted in Pensions, Retirement Planning, Taxation | Tagged: Patient Protection and Affordable Care Act, PPACA, tax | Leave a Comment »
Posted by William Byrnes on November 23, 2012
… While most compromise legislation has focused on allowing some of these rates to rise while maintaining current rates for lower-income groups, Congress may beable to leave most tax rates in place if they focus on capping deductions and reducing spending for all taxpayers. Of course,
US Tax Rates (Taxes on riches/wealth) (Photo credit: mSeattle)
Read the entire article at National Underwriters’ –> Life Health Pro <–
Posted in Estate Tax, Tax Policy, Taxation | Tagged: Bush Tax Cuts, tax, Tax rate | Leave a Comment »
Posted by William Byrnes on November 21, 2012
http://www.nationalunderwriter.com/2013-tax-facts-on-insurance-employee-benefits-269.html
Organized in a convenient Q&A format to speed you to the information you need, 2013 Tax Facts on Insurance & Employee Benefits delivers the latest guidance on:
- Estate & Gift Tax Planning
- Roth IRAs
- HSAs
- Capital Gains, Qualifying Dividends
- Non-qualified Deferred Compensation Under IRC Section 409A
- And much more!
Key updates for 2013:
- Enhanced explanation of the Disclosure Regulations for Retirement Plan Service Providers
- Expanded section on the taxation of annuities
- More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
- Life Insurance
- Health Insurance
- Federal Income Taxation
- Estate Taxation
Plus, you’re kept up-to-date with online supplements for critical developments.
Posted in Estate Tax, Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: Capital gain, Deferred compensation, estate planning, Internal Revenue Code section 409A, life insurance, Pension, Roth, Roth IRA, tax | Leave a Comment »
Posted by William Byrnes on November 21, 2012
For your clients who have been playing the wait-and-see game in estate planning this year, the time for waiting is over. Absent congressional action, the current $5.12 million exemption will revert to $1 million in less than three months, and the current 35% maximum estate tax rate will jump to 55%. The entire article is available at http://www.lifehealthpro.com/2012/10/17/the-ticking-estate-tax-time-bomb-less-than-90-days
Posted in Estate Tax, Pensions, Retirement Planning, Taxation, Trusts, Wealth Management | Tagged: estate planning, Inheritance tax, tax, Tax exemption | Leave a Comment »
Posted by William Byrnes on November 19, 2012
…insurance companies have begun building annuity products in a variety of shapes and sizes, and the latest crop of deferred income annuity products could pave the way for clients seeking to maximize retirement income security in the years leading up to retirement. Read the full article on AdvisorOne – http://www.advisorone.com/2012/11/08/how-new-deferred-annuities-provide-income-early-in
Posted in Estate Tax, Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: annuities, Financial services, insurance, Life annuity, Pension, Retirement, tax | Leave a Comment »
Posted by William Byrnes on November 15, 2012
Tax (Photo credit: 401(K) 2012)
With the election behind us, it is time for your clients to turn their attention to the looming tax reforms that should take shape over the next two months, and how these reforms can affect their retirement planning. Both arms of Congress will be working to reach a compromise on tax code provisions as basic as income tax rates before Jan. 1, after which the Bush-era tax cuts will expire, and rates could revert to pre-2001 levels.
Though President Obama spent little time discussing his views on tax-favored retirement accounts during his campaign, the plans he did set forth are indicative of the consequences for retirement savings. While this impact may not be immediately apparent to your clients, it is something that they need to consider as they plan for retirement this year and beyond. See the full article on National Underwriters’ Life Health Pro http://www.lifehealthpro.com/2012/11/13/retirement-planning-for-the-next-4-years-under-pre
Posted in Estate Tax, Tax Policy, Taxation, Wealth Management | Tagged: Barack Obama, Retirement, Social Security, tax | Leave a Comment »
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: Futures, Futures contract, Internal Revenue Service, IRS, Options, Recharacterisation, Security (finance), tax | Leave a Comment »
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: Employment, insurance, Internal Revenue Service, IRS, Millennium Plan, tax, Tax shelter, Welfare | Leave a Comment »
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: FATCA, Financial services, Hiring Incentives to Restore Employment Act, insurance, Internal Revenue Service, tax, Tax avoidance and tax evasion, United States | Leave a Comment »
Posted by William Byrnes on November 23, 2011
Generally, life insurance policies be withdrawn without income tax consequences. However, there are circumstances where a “loan” is immediately taxable. We have covered situations where a policy is surrendered with a loan outstanding, resulting in taxable income. This article discusses another case where a policy “loan” will be treated as taxable income.
In Frederick D. Todd II et ux. v. Commissioner (T.C. Memo. 2011-123), the Tax Court considered whether a distribution from a welfare benefit fund to a fund participant was a policy loan or a taxable distribution.
For previous coverage of life insurance policies held by welfare benefit funds in Advisor’s Journal, see Deductions for Life Insurance Premium Payments to Welfare Benefit Plan Denied (CC 10-29).
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 welfare benefit funds, see Advisor’s Main Library: B—Welfare Benefit Funds.
Posted in Wealth Management | Tagged: income tax, insurance, Insurance policy, Loan, Payment, tax, Taxable income, Welfare | Leave a Comment »
Posted by William Byrnes on November 18, 2011
In recent times, federal estate tax is receiving most of the attention. Nevertheless, most of the death tax activity affecting Americans occurs at the state level.
The reality is, fewer states (twenty-two plus D.C) currently have a “death tax”—referring collectively to estate and inheritance taxes. Recently, a number of those states increased their exemption amount to exclude a large majority of their residents from the tax. One state—Ohio—is on the verge of repealing its estate tax altogether.
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 Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).
Posted in Wealth Management | Tagged: Estate tax in the United States, Inheritance tax, Ohio, Politics, tax, Taxation, United States, United States Congress | 1 Comment »
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: Bank Secrecy Act, FBAR, Internal Revenue Service, Report of Foreign Bank and Financial Accounts, tax, Treasury, United States, United States Treasury Department | Leave a Comment »
Posted by William Byrnes on October 26, 2011
Life insurance is a common tool for ensuring estates have adequate liquidity to pay estate expenses and taxes. But recent changes to the estate tax have some people questioning whether the high premiums they’re paying are worth it when their estates are no longer likely to be hit by the estate tax.
With a $5 million exclusion amount and brand-new exclusion portability provisions, far fewer households have to deal with the federal estate tax. But is allowing unneeded life insurance to lapse the best solution?
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 valuation in Advisor’s Journal, see Relative Policy Value of Life Insurance (CC 11-57).
Posted in Wealth Management | Tagged: Agents and Marketers, Business, Financial services, insurance, Insurance policy, Life, life insurance, tax | Leave a Comment »
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: Charitable organization, income tax, Internal Revenue Code, Internal Revenue Service, IRS, IRS tax forms, Standard deduction, tax | Leave a Comment »
Posted by William Byrnes on October 19, 2011
Although at least 25 percent of all US retirement assets are held in personal retirement accounts (IRAs), until now, only limited data existed on asset allocations in IRAs. Consequently, the retirement prospects of retirees owning IRAs have been a mystery.
New developments from the Employee Benefit Research Institute (EBRI) gives us a preview into self-directed accounts like IRAs, providing hard data on the investing behavior of account owners and giving us insight into common problem areas in these accounts.
EBRI’s database includes information on 11.1 million individuals’ 14.1 million individual retirement accounts. Assets in the tracked accounts amount to $732.9 billion.
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 IRAs in Advisor’s Journal, see Maximize IRA Stretch with Individual Inherited IRA Accounts (CC 10-69) and To Convert or Not to Convert, That is the Question (CC 07-40).
For in-depth analysis of IRAs, see Advisor’s Main Library: A – Introduction to Individual Retirement Plans (IRAs).
Posted in Taxation, Wealth Management | Tagged: Business, Individual Retirement Account, Pension, Retirement, Roth IRA, tax, Traditional IRA, TurboTax | Leave a Comment »
Posted by William Byrnes on October 5, 2011
Both sides of the political spectrum agree that corporate tax reform is a priority.For reform to happen, tough choices are needed from Washington. Reform would develop a system that forces multinational corporations to pay their fair share without hurting US competitiveness in the world markets. Overtax multinational corporations, and they’ll move their operations overseas; under-tax and you’ll reduce revenue that is sorely needed by the US government.
As part of the ongoing debate and investigation of the US corporate tax system, the U.S. House Committee on Ways and Means is hearing testimony from tax experts on the US tax system and alternatives.
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 corporate tax reform issues in Advisor’s Journal, see Obama’s Blue Ribbon Debt Commission Proposes Complete Overhaul of the Tax Code (CC 10-95).
For in-depth analysis of US Corporate Tax, see Advisor’s Main Library: A – The Corporate Income Tax.
Posted in Taxation, Wealth Management | Tagged: Corporate tax, Multinational corporation, Republicans, tax, United States, United States Congress, Washington, White House | Leave a Comment »
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: accounting, Business, Internal Revenue Service, IRS, tax, Tax Court, United States, United States Tax Court | Leave a Comment »
Posted by William Byrnes on September 6, 2011
The Obama Administration’s 2012 federal budget proposal has revived two budget proposals that will impact the life insurance business – one affecting Corporate-Owned Life Insurance (“COLI”) and the other affecting carriers’ Dividends-Received Deduction (“DRD”).
In response to concern that the proposals tamper threaten the tax preferred status of life insurance, the Treasury recently issued a letter clarifying that these proposals have relevance only to tax arbitrage issues, not the tax treatment of death benefits.
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 corporate life insurance in Advisor’s Journal, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC 11-41).
For in-depth analysis of taxation affecting corporations, see Advisor’s Main Library: A – The Corporate Income Tax.
Posted in Wealth Management | Tagged: Business, Corporate-owned life insurance, Financial services, insurance, Life, life insurance, tax, United States | Leave a Comment »
Posted by William Byrnes on September 5, 2011
Life settlements provide a unique source of revenue because their returns are not contingent on the market’s success.
But are they still lucrative in comparison to other municipal finance? Rancho Mirage California City Councilman Scott Hines thinks so.
Under Hines’ plan, the city would issue bonds, with most of the issue proceeds being used to finance city projects. The remaining funds would be invested in life settlements with an aggregate face value equal to the face value of the bond issue. Payouts on the life settlements would then be used to pay back bond principal.
Instead of the typical municipal bond financing arrangement, where tax dollars utilized to pay back both principal and interest on an issue, Hines’ plan would leave taxpayers with only a bill for interest payments.
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 settlements in Advisor’s Journal, see Life Settlement Provider Accused of Falsifying Life Span Reports (CC 11-23).
Posted in Wealth Management | Tagged: Bonds, Business, Finance, Financial services, Investing, Municipal bond, Stocks and Bonds, tax | Leave a Comment »
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: estate planning, Internal Revenue Service, IRS, law, Marital deduction, tax, United States, Widow | Leave a Comment »
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: Financial services, insurance, Internal Revenue Service, IRS, life insurance, Premium Financing, tax, Trust law | Leave a Comment »
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: Audit, Fiscal year, Internal Revenue Service, IRS, Syracuse University, tax, TurboTax, United States | Leave a Comment »
Posted by William Byrnes on August 8, 2011
Whether or not to give substantial lifetime gifts in 2011 and 2012 is going to be a hot topic between now and the end of 2012. But deciding whether to take advantage of the record high ($5 million) gift, estate and GST tax exclusion amount and low (35%) transfer tax rate isn’t a trivial matter.
Even your most tax savvy clients are going to need help deciding whether to take advantage of the new law.
The problem is that the new law—which was put into place by the Tax Reform Act of 2010—is scheduled to lapse on January 1, 2013. So is it worth taking the risk that Congress will radically change transfer tax laws for years post-2012? And what will happen to your clients’ transfer tax liability if Congress does change the law?
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: Congress, Goods and Services Tax (Canada), GST, income tax, law, tax, Transfer tax, United States Congress | Leave a Comment »
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: accounting, Audit, gift tax, Internal Revenue Service, IRS, tax, TurboTax, United States | Leave a Comment »
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: Business, Internal Revenue Service, IRS tax forms, Limited partnership, Self-employment, Small business, tax, TurboTax | Leave a Comment »
Posted by William Byrnes on July 13, 2011
Treasury Secretary Timothy Geithner sparked outrage when he suggested at a recent House Ways and Means subcommittee meeting that “Congress has to revisit this basic question about whether it makes sense for us as a country to allow certain businesses to choose whether they’re treated as corporations for tax purposes or not.” Geithner’s comments about pass-through entities evoked a sweeping gasp from millions of small business owners who could become virtually non-competitive if subject to a double tax regime. Behind client referrals, professional referrals were the second biggest producer. 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 Obama administration’s budget and tax proposals, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41) & Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01).
For in-depth analysis of S corporation taxation, see Advisor’s Main Library: B—Corporation’s Election Under Subchapter S.
Posted in Wealth Management | Tagged: Barack Obama, Obama administration, Small business, tax, Timothy Geithner, United States, United States House Committee on Small Business, United States Secretary of the Treasury | Leave a Comment »
Posted by William Byrnes on July 11, 2011
If you have small business clients who are struggling with back taxes and/or tax liens, you can tell them help is on the way. The IRS is offering assistance for both individuals and small businesses that are struggling to “meet their tax obligations, without adding unnecessary burden to [the] taxpayers.” The new program includes a number of features discussed in today’s Advanced Markets Journal. 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: accounting, Business, Internal Revenue Service, IRS, Small business, tax, Tax lien, TurboTax | Leave a Comment »
Posted by William Byrnes on May 2, 2011
A recent report by the Internal Revenue Service shows that total return filings are down this year as compared to the same time last year. The report shows that over 51.927 million individual taxpayers have filed through the end of February 2011. During this same period for the 2009 taxable year/2010 filing year the total number of returns by the end of February was around 53.556 million. The difference between the two years amounts to approximately a decrease of three percent.
What’s more, the average refund for the 2010 tax year/2011 filing season is also down from calculations from the same time last year. This year’s average individual refund is currently $3,129, down $20 from $3,149 in 2010. Read the analysis at AdvisorFYI
Posted in Taxation | Tagged: accounting, Fiscal year, Government, Internal Revenue Service, tax, Tax refund, Tax return (United States), United States | Leave a Comment »
Posted by William Byrnes on April 29, 2011
Today we re-examine the case in-depth, focusing on how the IRS utilizes the step transaction doctrine to deny taxpayers valuation discounts. The case is yet another example of how important the dating of transactions is when you’re looking to secure a valuation discount. A single date on a document can mean the difference between a substantial valuation discount on a gift and the expense of fighting the IRS through the court system. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of valuation discounts in Advisor’s Journal, see IRS Rebuffed by Federal Court of Appeals in Valuation Discount Case (CC 11-21), Vigorous Debate over Qualified Appraisal Standard for Valuation of Donated Policies (CC 10-92) & Valuation Discounts: Only for a Bona Fide Business (CC 10-60).
For in-depth analysis of gift tax valuation discounts, see Advisor’s Main Library: A—Family Limited Partnerships and Estate & Gift Tax Valuation Discounting.
Posted in Estate Tax, Taxation | Tagged: Business, Discounting, Facebook, Foursquare, Internal Revenue Service, IRS, tax, valuation | Leave a Comment »
Posted by William Byrnes on April 28, 2011
In the midst of the tax filing season, the Internal Revenue Service released the 2011 version of its discussion of many of the more common “frivolous” tax arguments made by individuals and groups that oppose compliance with federal tax laws.
The Service suggested that “anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read their 84-page document, The Truth About Frivolous Tax Arguments.” At AdvisorFYI, we are not contemplating any particular legal grounds for not paying a “fair share of taxes”, whatever that may be, but rather are interested in presenting some of the frivolous positions argued and how the Government generally responds. We’ve presented a few select ones below.
The 2011 IRS document explains many of the common “frivolous” arguments made in recent years and it presents a legal position that attempts to refute these claims. The IRS claims, the document “will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.”
Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.
Here are some of positions we found to be commonly marketed to the public, and how the IRS responds to the positions: Read the analysis at AdvisorFYI
Posted in Taxation | Tagged: Internal Revenue Service, IRS tax forms, law, Offer in compromise, tax, TurboTax, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on April 6, 2011
Taxpayers with assets hidden in offshore accounts will get a second chance to voluntarily declare their assets to the IRS in return for reduced penalties under the new Offshore Voluntary Disclosure Initiative (“OVDI”).
This newest offshore amnesty program offers a reduced, 25% penalty which will be calculated based on the highest aggregate amount in the taxpayer’s offshore account between 2003 and 2010. In addition to penalties, program participants will be required to pay eight years of back taxes plus interest, accuracy related penalties, and delinquency penalties. 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 offshore issues in Advisor’s Journal, see IRS Planning New Voluntary Disclosure Program for Offshore Assets (CC 10-118), Offshore’s Limited Shelf Life (CC 10-47) & IRS Proposed FATCA Guidance Expands Offshore Compliance Initiatives (CC 10-52)
Posted in Compliance, Tax Policy | Tagged: Douglas Shulman, Internal Revenue Service, IRS, Offshore bank, Switzerland, tax, UBS, United States | Leave a Comment »
Posted by William Byrnes on March 31, 2011
The Tax Court recently calculated the fair market value (“FMV”) of life insurance policies distributed by a terminated 419 welfare benefit plan. The FMV of the policies—which must be included in the taxpayers’ income—was determined by the court based on: (1) surrender charges, (2) conditions imposed on the taxpayers by the insurance company, and (3) “paid-up insurance coverage remaining on the policies as of the date of distribution.” 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 policy valuation in Advisor’s Journal, see Tax Courts Holds Employee Taxable for Value of Life Insurance Owned by Welfare-Benefit Plan (CC 11-14).
For in-depth analysis of welfare benefits plans, see Advisor’s Main Library: B—Welfare Benefit Funds.
Posted in Retirement Planning | Tagged: Business, Employment, Fair market value, insurance, life insurance, Policy, tax, Welfare | Leave a Comment »
Posted by William Byrnes on March 30, 2011
Why is this Topic Important to Wealth Managers? This topic presents discussion on the individual and nonbusiness deductions offered under the Internal Revenue Code. Since April 15th is fast approaching, it is important to review common tax positions with regards to client planning.
In addition this blogticle presents a excerpted preview of new, updated material from Advanced Markets which will be available soon (see www.advisorfx.com). Over the coming 9 months, the entire AUS service is being revised and will be rolling out monthly. The updating will include many new areas and a sharper focus with practical explanations and client presentation aides for current areas. We look forward to helping you secure your next sale.
An expense of an individual may be business, nonbusiness, or personal, depending upon which of the individual’s spheres of activity gave rise to the expense. This Blogticle discusses personal and nonbusiness expenses generally.
Personal Expenses
Personal expenses are all expenses incurred by an individual that are not business or nonbusiness expenses. These would include, for example, food and clothing for the individual and his family, repairs on the family home, and premiums paid on the individual’s personal life insurance. Generally, no deduction is permitted for personal expenses.[1] By specific statutory provision, however, deductions are allowed for some personal expenses, such as certain personal taxes, a limited amount of charitable contributions, medical expenses, certain interest on a principal residence, and alimony.
Most deductible personal expenses are “itemized deductions” and thus may be taken only if the taxpayer chooses to itemize his deductions instead of claiming the standard deduction.
Nonbusiness Expenses
A nonbusiness expense is generally an investment expense incurred in connection with the production of income, other than a trade, business or profession. Expenses of this type would include, for example, fees for tax or investment advice, and the cost of a safe deposit box used to store taxable securities. The deduction of nonbusiness expenses is governed by Code section 212. Specifically, Section 212 allows a deduction for expenses incurred in connection with: (1) the production or collection of income; (2) the management, conservation, or maintenance of property held for production of income; or (3) the determination, collection or refund of any tax.
The deductibility of nonbusiness expenses may be limited or deferred if they arise in connection with a “passive activity” or are interest expenses. Very generally, a “passive activity” is any activity which involves the conduct of a trade or business in which the taxpayer does not “materially participate.” [2] A passive activity also includes any rental activity, without regard to whether the taxpayer materially participates in the activity. Special rules apply to rental real estate activities. Aggregate losses from “passive activities” may generally be deducted in a year only to the extent they do not exceed aggregate income from passive activities in that year; credits from passive activities may be taken only against tax liability allocated to passive activities. Disallowed losses and credits may be carried over to offset passive income in later years. [3]
Once other limitations have been applied to the deductibility of nonbusiness expenses (e.g., the passive loss rule), they are generally deductible only to the extent that the aggregate of these and other “miscellaneous itemized deductions” exceeds 2% of adjusted gross income. “Miscellaneous itemized deductions” are deductions from adjusted gross income other than deductions for (1) interest, (2) taxes, (3) non-business casualty losses and gambling losses, (4) charitable contributions (including charitable remainder interests), (5) medical and dental expenses, (6) impairment-related work expenses for handicapped employees, (7) estate taxes on income in respect of a decedent, (8) certain short sale expenses, (9) certain adjustments under the Code’s claim of right provisions, (10) unrecovered investment in an annuity contract, (11) amortizable bond premium, and (12) certain expenses of cooperative housing corporations. [4]
A nonbusiness expense must also be “ordinary and necessary” to be deductible. [5] It must, therefore, be reasonable in amount and must bear a reasonable and proximate relation to (a) the production or collection of taxable income, or (b) the management, conservation, or maintenance of property held for the production of income. [6]
Tomorrow’s blogticle will discuss important planning aspects of 2011.
We invite your opinions and comments by posting them below, or by calling the Panel of Experts
Posted in Taxation | Tagged: accounting, Adjusted Gross Income, Business, Expense, Itemized deduction, tax, Tax deduction, United States | Leave a Comment »
Posted by William Byrnes on March 26, 2011
Why is this Topic Important to Wealth Managers? Increasing the IRS staffing budget in certain departments may be indicative of increasing scrutiny of client’s information and tax returns. Increasing government scrutiny may lead to increased compliance costs in time and fees. Consequently, a wealth manager may want to address with client the need for increasing diligence in preparation of their affairs. Thus, Advanced Market Intelligence presents a discussion on the Internal Revenue Services’ allocations for fiscal year 2012, and contrasts 2010 data and figures.
The fiscal year 2012 proposed budget allocates $14 billion to the Department of the Treasury; a 4 percent increase above the 2010 enacted level. [1] The increase over 2010 levels is attributed to costs associated with implementation of legislation and new investments in IRS tax compliance activities that are aimed to help reduce the deficit. Of the $14 billion appropriated to the Treasury operations, over $13.28 billion is encumbered for the Internal Revenue Service.[2]
The Internal Revenue Service has allocated its appropriations to the tune of $2.345 billion for “Taxpayer Services”; $5. 96 billion for “Enforcement” of which over $5 billion is apportioned to “Exam and Collections”; “Operations and Support” represent $4.62 billion; and “Business Systems Modernization” together with “Health Insurance Tax Credit Administration” represent approximately $351 million. [3]
The main function of the Internal Revenue Service is to collect he revenue that funds the government and administer the nation’s tax laws. [4] The IRS collected $2.345 trillion in taxes (gross receipts before tax refunds) in 2010, or 93 percent of all federal government receipts.
Total resources to support the IRS activities for fiscal year 2012 are estimated to be around $13.626 billion, including $13.283 billion from direct appropriations, an estimated $138 million from reimbursable programs, and an estimated $204 million user fees. The direct federal budget appropriation is $1,137,784,000, 9.37 percent, more than the fiscal year 2010 enacted level of $12,146,123,000. [5]
The 2012 budget provides funding to implement enacted legislation; handle new information reporting requirements; increase compliance by addressing offshore tax evasion; expand enforcement efforts on noncompliance among corporate and high-wealth taxpayers; and enforce return preparer compliance.
The IRS estimates new enforcement personnel will generate more than $1.3 billion in additional annual enforcement revenue once the new hires reach full potential in fiscal year 2014.
Even the Department of the Treasury notes, the tax law is complex and that even sophisticated taxpayers can make honest mistakes on their tax returns. To this end, the IRS states that it remains committed to a balanced program of assisting taxpayers to both understand the tax law and remit the proper amount of tax.
In fiscal year 2010, revenue from all enforcement sources at the IRS reached $57.6 billion, 18 percent more than in 2009. The significant increase was attributable in part to: Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Budget, Business, Douglas Shulman, Fiscal year, Internal Revenue Service, Republicans, tax, United States Department of the Treasury | 1 Comment »
Posted by William Byrnes on March 23, 2011
Why is this Topic Important to Wealth Managers? A producer should be able to present a perspective of the potential impact of current budget proposals upon investments that will be realized in the future. Thus, Advanced Market Intelligence discusses certain features to the proposed federal budget that impact fiscal year 2012.
The President’s new budget proposal included many revenue raising measures. However, below are two areas affecting the tax code that will actually increase the deficit, and also have a strong likelihood to have an impact on clients’ decisions made today.
Currently, the maximum rate of tax on the qualified dividends and net long-term capital gains of an individual is 15 percent. [1] In addition, any qualified dividends and capital gains that would otherwise be taxed at a 10- or 15-percent ordinary income tax rate are taxed at a zero percent rate.
The zero- and 15-percent rates for qualified dividends and capital gains are scheduled to expire for taxable years beginning after December 31, 2012. [2] In 2013, the maximum income tax rate on capital gains would increase to 20 percent (18 percent for assets purchased after December 31, 2000 and held longer than five years), while all dividends would be taxed at ordinary tax rates of up to 39.6 percent.
Taxing qualified dividends at the same low rate as capital gains for all taxpayers is said to reduce the tax bias against equity investment and promote a more efficient allocation of capital. Eliminating the special 18-percent rate on gains from assets held for more than five years is thought to further simplify the tax code. Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Alternative Minimum Tax, Capital gain, Dividend, Fiscal year, Qualified dividend, Rate schedule (federal income tax), tax, Tax rate | Leave a Comment »
Posted by William Byrnes on March 19, 2011
You’d better think twice before agreeing to act as trustee for your clients’ trusts, since doing so can cost you far more than the goodwill and fees it generates.
We all know that, depending on the circumstances, a trust, its grantor, or its beneficiaries can be held responsible for tax liability stemming from trust income.
What about its trustee?
Although trustees are not usually personally responsible for a trust’s taxes, a trustee can be stuck with the tax bill if the trustee breaches his or her fiduciary duty to the beneficiaries. A U.S. District Court recently considered a trustee’s liability for GST taxes when the trust’s beneficiaries claimed that the trustee failed to keep them informed of their potential liability for taxes stemming from trust distributions.
The trustees’ mistake in this case could cost them over $1 million. Read the full analysis by linking to AdvisorFX!
Posted in Trusts | Tagged: accounting, Beneficiary, Fiduciary, tax, Taxation, Trust law, Trustee, United States | Leave a Comment »
Posted by William Byrnes on March 18, 2011
Company is an accrual basis fiscal year taxpayer. Company pays severance benefits in its discretion on an ad hoc basis, and vacation benefits pursuant to its established policy.
Historically, Company has paid both severance and vacation pay from its general assets. Due to a decline in the Market over the past few years, Company has paid significant severance and expects to continue to pay additional severance over the next few years. Effective Jan 1, 2009 Company established Trust to pay this anticipated severance and vacation pay. Trust intends to submit an application for recognition of exempt status in 2010. On 1/1/2009 Company contributed over $1,000,000 to the Trust and deducted that amount on its tax return for 2009. Company indicates that beginning in 2010, Company will make payments for vacation and severance and will seek reimbursement from the Trust.
Company computed the amount deducted based on the limitation set forth in the Code.
Company has not provided any information documenting any severance claims incurred in 2009 that it expects to pay in 2010. Company indicates that because the Trust was established “to pay severance that they anticipate they will have to pay over the next few years …”, and because the amount deducted is within the limit set forth in the Code that the deduction is proper. Read the analysis at AdvisorFYI
Posted in Retirement Planning, Taxation | Tagged: Employment, Fiscal year, Internal Revenue Service, IRS tax forms, Severance package, tax, Tax deduction, TurboTax | Leave a Comment »
Posted by William Byrnes on March 17, 2011
The Internal Revenue Service announced earlier this week a special voluntary disclosure initiative (the second one of its kind in the past few years). The Internal Revenue Service states the program is designed to bring offshore money back into the U.S. tax system and assist individuals that may have undisclosed income from hidden offshore accounts to pay taxes owed. The new voluntary disclosure initiative will be available through Aug. 31, 2011.
The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. According to the IRS, the first special voluntary disclosure program finished with 15,000 voluntary disclosures on Oct. 15, 2009. Since that time, the Service notes, more than 3,000 taxpayers have come forward to the IRS with bank accounts from around the world.
The new initiative is being called the 2011 Offshore Voluntary Disclosure Initiative, which includes several changes from the 2009 Offshore Voluntary Disclosure Program. The overall penalty structure for 2011 is higher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting. However, the 2011 initiative does have additional features.
For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. However, some taxpayers will be eligible for lower 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.
Read the analysis at AdvisorFYI
Posted in Uncategorized | Tagged: Bank, Bank account, Douglas Shulman, Internal Revenue Service, Offshore bank, tax, UBS, United States | 1 Comment »
Posted by William Byrnes on March 12, 2011
How does the average gambler determine wagering gains and losses for tax purposes?
Mrs. X is a casual gambler. She uses the cash receipts and disbursements method of accounting and files her returns on a calendar year basis. Mrs. X’s gaming practice is to commit only $100 to slot machine play on any visit to a casino. She wagers until she loses the original $100 committed to gambling or until she stops gambling and “cashes out.”
Upon cashing out, there are three possibilities, that she have $100 (the basis of her wagers), less than $100 (a wagering loss), or more than $100 (a wagering gain). She went to a casino to play the slot machines on ten separate occasions throughout the year. On each visit to the casino, she exchanged $100 of cash for $100 in slot machine tokens and used the tokens to gamble. On five occasions, the she lost her entire $100 in tokens before terminating play. On the other five occasions, the she redeemed her remaining tokens for the following amounts of cash: $20, $70, $150, $200 and $300.
Under the Internal Revenue Code, gross income means all income from whatever source derived, which has been determined to include wagering gains. [1]
The Code further allows a deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise. [2] In the case of losses from wagering transactions, losses are allowed only to the extent of gains from such transactions. [3]
In ordinary practice, a wagering “gain” means the amount won in excess of the amount bet (basis). [4] That is, the wagering gain is the total winnings less the amount of the wager. The term wagering “loss” means the amount of the wager (basis) lost.
Generally, gamblers may not carry over excess wagering losses to offset wagering gains in another taxable year or offset non-wagering income. [5] Nor may casual gamblers net their gains and losses from play throughout the year and report only the net amount for the year. [6]
It is accepted that fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. [7]
Under the facts presented above, Mrs. X purchased and subsequently lost $100 worth of tokens on five separate occasions. As a result, the taxpayer sustained $500 of wagering losses. She also sustained losses on two other occasions, when she redeemed tokens in an amount less than the $100 (basis) of tokens originally purchased.
Therefore, on the day the taxpayer redeemed $20 worth of tokens, the taxpayer incurred an $80 wagering loss. On the day the taxpayer redeemed $70 worth of tokens, the taxpayer incurred a $30 wagering loss. On three occasions, the taxpayer redeemed tokens in an amount greater than the $100 of tokens originally purchased. The amount redeemed less the $100 basis of the wager constitutes a wagering gain. [8] On the day the taxpayer redeemed $150 worth of tokens, the taxpayer had a $50 wagering gain. On the day the taxpayer redeemed $200 worth of tokens, the taxpayer had a $100 wagering gain. And on the day the taxpayer redeemed $300 worth of tokens, the taxpayer had a $200 wagering gain.
For the year, the taxpayer had total wagering gains of $350 ($50 + $100 + $200) and total wagering losses of $610, ($500 from losing the entire basis of $100 on five occasions + $80 and $30 from two other occasions). Mrs. X’s wagering losses exceeded her wagering gains for the taxable year by $260 ($610 – $350). She must report the $350 of wagering gains as gross income under IRC § 61. However, under IRC §165(d), she may deduct only $350 of the $610 wagering losses. In this case, the taxpayer may deduct only $350 of her $610 of wagering losses as an itemized deduction. Generally, a casual gambler who takes the standard deduction rather than electing to itemize may not deduct any wagering losses. [9]
[1] IRC Section 61; Rev. Rul. 54-339; Umstead v. Commissioner, T.C. Memo. 1982-573, 44 TCM 1294, 1295 (1982).
[2] IRC Section 165(a).
[3] IRC Section 165(d); Treasury Regulations Section 1.165-10.
[4] See Rev. Rul. 83-103.
[5] Skeeles v. United States, 118 Ct. Cl. 362 (1951), cert. denied, 341 U.S. 948 (1951).
[6] See United States v. Scholl, 166 F.3d 964 (9thCir. 1999).
[7] See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
[8] See Rev. Rul. 83-130.
[9] See Rev. Rul. 54-339.
We invite your opinions and comments by posting them below, or by calling the Panel of Experts.
Posted in Taxation | Tagged: Gambling, Games, Internal Revenue Code, Internal Revenue Service, Itemized deduction, Shopping, Slot machine, tax | Leave a Comment »
Posted by William Byrnes on March 9, 2011
Last month the National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the need for tax reform as the number one priority in tax administration. The report also examines challenges the IRS is facing in implementing the new health care law. Below is a highlight of some points made in the report: [1]
Tax Reform
“There has been near universal agreement for years that the tax code is broken and needs to be fixed,” Olson said in releasing the report. “Yet no broad-based attempt to reform the tax code has been made. This report documents the burdens the tax code imposes on taxpayers and explores why many taxpayers may nevertheless feel wedded to key aspects of the current system, undermining efforts at reform.”
Analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Health law, Internal Revenue Service, Nina E. Olson, tax, Tax law, Tax reform, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on March 6, 2011
Valuation discounts will always be a disputed issue between taxpayers and the IRS, but as illustrated by the recently published Ninth Circuit Court of Appeals case, a properly timed gift can still qualify for a discount. The parents contributed cash, securities, and real property to an LLC and then transferred LLC interests to a trust (“the children’s trust”) naming their children as beneficiaries.
The IRS rejected the valuation discount, claiming that the parents did not make a gift of the LLC interests to the trusts as they claimed, but instead made an indirect gift of the assets owned by the LLC. The IRS also argued that, even if the LLC were funded prior to the gifting of the LLC interests to the children, the transaction’s two steps—transfer of assets to the LLC and the gift of the LLC interest to the children’s trust—were really a single transaction, an indirect gift of the assets, under the step transaction doctrine. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Estate Tax | Tagged: Internal Revenue Service, IRS, Limited liability company, tax, Trust law, United States, United States Court of Appeals for the Ninth Circuit, Valuation (finance) | Leave a Comment »
Posted by William Byrnes on March 5, 2011
President Obama recently targeted corporate tax rates in his State of the Union address. “It makes no sense, and it has to change”. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit. It can be done.”
Here’s why some politicians in Washington are calling for reform:
Although America has one of the highest maximum corporate tax rates throughout industrialized nations, many large corporations pay only a fraction of the maximum rate. In a study by a New York University Professor, the data shows that a great number of public companies are paying around half, or even less, than the maximum corporate rate.
Read the analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Barack Obama, Business Roundtable, Corporate tax, New York University, State of the Union address, tax, United States, Washington | Leave a Comment »
Posted by William Byrnes on March 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 27, 2011
A significant number of Offshore Voluntary Disclosure Practice cases (remember the Swiss Bank Accounts) involve Passive Foreign Investment Company (PFIC) investments. A lack of historical information on the cost basis and holding period of many PFIC investments, the Service notes, may make it difficult for taxpayers to prepare statutory PFIC computations and for the Internal Revenue Service to verify them. As a result, resolution of many Disclosure Practice cases are said to be unduly delayed. Therefore, for purposes of this initiative, the Internal Revenue Service is offering taxpayers an alternative to the statutory PFIC computation that will resolve PFIC issues on a basis that is consistent with the Mark to Market (MTM) methodology authorized in Internal Revenue Code section 1296 but will not require complete reconstruction of historical data.
Posted in Tax Policy | Tagged: Banking in Switzerland, Internal Revenue Service, Investment, Passive Foreign Investment Company, PFIC, tax | Leave a Comment »
Posted by William Byrnes on February 25, 2011
The Internal Revenue Code provides an exclusion from income for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. [1] Thus, there are no tax consequences to the individual if the total amount of such policies does not exceed $50,000. However, the imputed cost of coverage in excess of $50,000 must be included in income to the individual, using the IRS Premium Table, [2] and are subject to social security and Medicare taxes.
A taxable fringe benefit arises if coverage exceeds $50,000 and the policy is considered carried directly or indirectly by the employer. A policy is considered carried directly or indirectly by the employer if:
- The employer pays any cost of the life insurance, or
- The employer arranges for the premium payments and the premiums paid by at least one employee subsidize those paid by at least one other employee (known as the “straddle” rule).
A policy that is not considered carried directly or indirectly by the employer has no tax consequences to the employee. Also, because the employees are paying the cost and the employer is not redistributing the cost of the premiums through an insurance system, the employer has no reporting requirements.
Read the analysis at AdvisorFYI
Posted in Insurance | Tagged: Employee benefit, Employment, Federal Insurance Contributions Act tax, insurance, Internal Revenue Service, Policy, tax, term life insurance | Leave a Comment »
Posted by William Byrnes on February 24, 2011
The topic Self-Employment Tax on wages versus distributions has reared its head again – as shown by the recent Federal District Court case involving David E. Watson.
The C.P.A. recently disputed and lost to the Government’s position which recharacterized dividend and loan payments from David E. Watson, P.C. (a Subchapter S corporation) to its sole shareholder and employee, David E. Watson. The IRS assessed additional employment taxes, interest and penalties against Watson for each of tax years in which Watson’s salary was significantly lower than his total distributions.
Read the analysis at AdvisorFYI (sign up for a 2 week online free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Tax Policy | Tagged: Corporation, Internal Revenue Service, IRS tax forms, Self-employment, tax, Taxation, United States, Withholding tax | Leave a Comment »
Posted by William Byrnes on February 22, 2011
As reported earlier this month in Advisor’s Journal [Qualified Charitable Distributions from an IRA (CC 11-03))], a qualified charitable distribution (QCD) of up to $100,000 made from an IRA will not be included in the taxpayer’s gross income, as long as the contribution is made directly from the trustee to a public charity or conduit private foundation when the account owner is at least 70½ years old.
One benefit of taking a QCD is that it can qualify as a required minimum distribution (RMD). For the taxpayer who does not have a financial need for the distribution, making a QCD is an opportunity to take the RMD—avoiding the severe tax penalties for not taking the distribution—while excluding the distribution from taxable income.
But because the QCD provision lapsed during 2010, taxpayers who took an RMD during 2010 are out-of-luck.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Retirement Planning | Tagged: Charitable organization, Individual Retirement Account, Internal Revenue Service, Pension, Roth IRA, tax, Taxation, Traditional IRA | Leave a Comment »
Contributing FATCA Expert Practitioners
William Byrnes' Tax, Wealth, and Risk Intelligence 