Tuesday, July 06, 2010 GRATs
Both the House and the Senate are considering changes to the taxation of GRATs that would greatly reduce the estate and gift tax savings that GRATs generate. The changes would prohibit the establishment of short-term GRATs by requiring a minimum term of 10 years. In addition, it would eliminate zeroed-out GRATs by requiring that there be a minimum amount in the GRAT at the end of its term. Therefore, if any of your clients are considering establishing a GRAT or you are recommending a GRAT to your clients the GRAT should be established now, before any change is effective. If you or your clients require any assistance please call our office and speak to Neil or Bob. Tuesday, July 06, 2010 Home Buyers Tax Credit
President Obama signed the bill on July 2 giving taxpayers, who qualify, until midnight on September 30, 2010 to take title to their new home. Thursday, July 01, 2010 Home Buyers Tax Credit
Update- Last night the Senate passed the extension as well. It is now going to the President for signature. Wednesday, June 30, 2010 Home Buyers Tax Credit
The $8,000 home tax credit expired on April 30, 2010. However, anyone who had a contract in place on that date could qualify for the credit as long as they closed title before July 1, 2010. As we all are aware, if you went to contract in late April it is very difficult to accomplish the closing by July 1. Many clients are faced with the dilemma caused by this restrictive closing date. Yesterday the House passed "The Home Buyer Assistance Act of 2010" which would extend the closing deadline to midnight on Sepember 30, 2010. The Senate is expected to pass a similar measure and once passed the President is expected to sign the bill.
As soon as this provision is signed into law (hopefully !) we will send out a further blog. Any thoughts? Friday, April 23, 2010 NYS Tax Update
Lara and Neil attended the NYS Bar Association NYS and NYC Tax Institute yesterday, and while none of these provisions have as of yet been passed, there are a number of proposals that appear likely to be included in the final budget bill. Among them are:
1) A provision that would make Covenant Not to Compete payments to Non-Residents New York Source Income if the payments relate to a NY business.
2) Substantial changes to the OIC program including eliminating the requirement that the taxpayer have either filed bankruptcy or been insolvent, and changing the calculation of the minimum offer from the Maximum Amount that can be Collected Under the Law to an amount that Reasonably Reflects Collection Potential.
3) The elimination of the client Opt-Out as an automatic ground for the abatement of the penalty for failure to e-file. (This provision is apparently in response to a concern about the abuse of the client opt-out).
4) Allowing same-sex couples whose marriages are now recognized in NY to file Joint NY State returns. The filing of these returns will require the preparation of a pro-forma Federal return.
In addition, there are currently two bills before the NYS Legislature (S.6951 & S.2409A) both of which are intended to reverse the current rule that makes LLC members and Limited Partners per se personally responsible for unpaid Payroll and Sales tax regardless of whether they would otherwise meet the definition of Responsible Persons.
Lastly, Acting Commissoner Woodward announced that the NYS website will soon contain a list (in searchable form) of EVERY taxpayer against whom a Tax Warrant has been filed.
These issues will all likely be decided in the next few weeks and months and they will be discussed in detail at future seminars. Tuesday, March 16, 2010 QTIP election for NYS
With the current no-federal estate tax situation, a question arose as to whether a QTIP election could be made for the NYS estate tax. New York State law did not allow a separate QTIP election. A QTIP election was allowed for NYS estate tax purposes if the election was made on the federal estate tax return. Where there is no federal estate tax, or no estate tax return was required to be filed a separate NYS QTIP election could not be made.
New York State Department of Taxation and Finance has now rectified this problem with the issuance of TSB-M-10(1)M (issued on March 16, 2010). A separate NYS QTIP election can be made by attaching a pro-forma federal estate tax return to the NYS estate tax return.
The TSB states that for the year 2010, if there is no federal estate tax, the federal form to be used for the pro-forma purposes is the Form 706 (Rev. 9-2009) used for decedents dying in 2009. Wednesday, March 03, 2010 First Time Home Buyer Credit update
The IRS has reposted Form 5405 (First-Time Homebuyer Credit and Repayment Credit) with a special note concerning the attachment of the settlement statement. The Form's instructions requires that a signed settlement statement be attached to 2009 returns claiming the credit. The special note recognizes the fact that depending on the jurisdiction the settlement statement may not contain the signatures of the buyer and seller. Where signatures are not on the settlement statement the IRS is requesting that the buyer sign the settlement statement before it is attached to the return. The full note is reproduced below:
"While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and the seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required, the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line." Tuesday, February 16, 2010 Pay-As-You-Go (PAYGO)On February 12, President Obama signed into law the Statutory Pay-As-You-Go Act of 2010. The bill requires that any new non-emergency legislation affecting tax revenue not increase the federal deficit. In other words, any tax reduction provisions must be paid for by other tax increases.
It is interesting to note that the following tax provisions have been exempted from PAYGO:
Extension of the 2009 Estate and Gift Tax provisions;
An Alternative Minimum Tax patch;
A permanent extension of the Section 179 increases; and
Making permanent any middle class tax cuts (i.e. reduced capital gains and dividend rates, educational incentives, elimination of limits on personal and dependency exemptions and itemized deductions, and tax rate reductions). Monday, February 01, 2010 Heckerling Estate Planning ConferenceNeil and I just returned from Orlando Florida where we spent the last week listening to the "experts" regarding the current status of the estate tax and what Congress is planning to do. As you know, from my previous blog, Congress did not act prior to December 31, 2009 and therefore we presently have no estate tax for people dying in 2010. Unfortunately, the experts pointed out the problems with regard to the estate tax suspension for one year but were not able to add any insight as to what Congress may do and when they may do it.
However, they all seem to suggest that if Congress does not act within the next month no legislation will take place until after the mid-term election in November.
The next issue that they discussed was the constitutionality of a retroactive reinstatement of the estate tax law, for people dying in 2010. The general consensus is that since this is not a "new tax" it would be constitutional. Although they all believe that if the tax is made retroactive to January 1, 2010, there would be a number of law suits brought to challenge it.
Married clients, who had standard credit shelter wills, face special problems if they die in 2010 without the tax being retroactively reinstated. This results from the standard language that establishes the credit shelter trust which is based upon the maximum amount to create the minimum estate tax. Since there is no estate tax, the maximum amount would be the entire estate of the first of the spouses to die. This could create undisireable results for the survivor and their children. Therefore, it is important that elderly and infirmed married couples review their wills with competant counsel to avoid problems if one of them passes in 2010 and there is no estate tax.
Finally, the suspension of the estate tax has brought with it "carry-over" basis, which itself creates issues. For example, it is unclear as to whether carry-over basis only applies to assets sold in 2010 of an individual that died in 2010. The law provides that the estate tax and "fair market value" basis returns in 2011 as if the 2010 provisions "never applied." Does this mean that if an individual died in 2010, with no estate tax, and assets are sold in 2011 and later years the basis for those assets are the fair market value on the date of death or alternate valuation date?
There are many issues outstanding . This may be the first time that the phrase "it is what it is" has no meaning at all.
As always we are here to help you and your clients muddle through this maze. Tuesday, January 19, 2010 IR 2010-6 Home Sale ExclusionThe IRS has issued the new Form 5405, First Time Homebuyer Credit and Repayment of the Credit. This form is to be used to claim the first-time and second-time homebuyer credit on 2009 Income Tax Returns. The IRS announced that it will begin processing 2009 returns that claim the credit in mid-February. 2009 returns claiming the credit cannot be filed electronically.
One of the following documents must be attached to the new form:
1. A copy of the settlement statement showing all parties' names, addresses and signatures, the address of the property, the sales price and the date of purchase.
2. For newly constructed homes where a settlement statement is not available, a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.
To qualify for the "long-time resident credit" (the second-time homebuyer credit) the IRS is requesting the following documents to prove the 5 consecutive-year period out of the eight prior years requirement:
1. Copies of Form 1098, Mortgage Statement for the applicable years, or
2. Copies of property records, or
3. Homeowner's Insurance records.
To view a copy of the new form go to the following IRS website address:
http://www.irs.gov/pub/irs-pdf/f5405.pdf
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