Wealth Strategies Journal 2.0 (Beta)

Second Circuit Again Holds That Preferred Investor Was Not a Partner

Tue, 31 Jan 2012 18:09:58 -0500

The Second Circuit Court of Appeals has held for the second time that a preferred investor was not a partner for tax purposes, and it denied an allocation of taxable income to the tax-indifferent investor. The decision reversed the district court ruling and noted that the interest involved was still debt and not a "capital interest" under Section 704(e). The case is TIFD III-E, Inc., v. U.S., Docket No. 10-70-cv (2nd. Cir. 2012).

See Steven Schneider, "Second Circuit Again Concludes Preferred Investor Was Not a Partner," www.taxlawroundup.com (Jan. 30, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

Recent Estate Tax Rulings Uphold IRS Regulatory Interpretations

Mon, 30 Jan 2012 15:32:22 -0500

In two 2011 estate tax cases, executors were denied timeliness-related claims even though they asserted that administrative failures by the IRS contributed to the errors. The courts said that the lapses by the IRS did not rise to a level of misconduct that would justify special treatment for the estates. The cases are Dickow v. U.S., 654 F.3d 144 (1st Cir. 2011), and Estate of Telesmanich v. Comm'r, T.C. Memo 2011-181.

See Dayna E. Roane, "Two Estate Tax Rulings Uphold IRS Regulatory Interpretations," www.journalofaccountancy.com (Nov. 2011).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

Practitioners are Overzealous in Their Use of Circular 230 Disclosures

Mon, 30 Jan 2012 13:03:14 -0500

Tax Notes has published a "Letter to The Editor" from E. Lynn Nichols, CPA Nichols Patrick CPE, Inc., discussing Circular 230 disclosures in outgoing e-mail and conference presentations. In his letter, Mr. Nichols points out the overzealous use of the disclosures and states that the only circumstance where the disclosures are effective is in connection with a reliance opinion involving a transaction that has a principal purpose of tax evasion or avoidance.

See E. Lynn Nichols, "Hats Off to Dellinger's Take on Tax Advice Disclaimers," 2012 TNT 14-15 (Jan. 23, 2012).

Posted by Brian Spring, Associate Editor, Wealth Strategies Journal.

Judge Awards Division of Medical Assistance $178,496 Found in Abandoned Safe

Mon, 30 Jan 2012 12:44:18 -0500

According to an article in the Eagle Tribune, an Essex County Superior Court Judge has awarded the Massachusetts Division of Medical Assistance $178,496 found in abandoned safe. In November 2008, firefighters in Lawrence, Massachusetts discovered an abandoned safe in a vacant lot. Inside the safe, the firefighters discovered $178,496 in cash. The safe and money were traced back to a former shoe store owner, Sally Daher, who spent the remaining years of her life in a nursing facility.

Once the cash was linked to Ms. Daher, the Massachusetts Estate Recovery Unit filed a claim for the cash. Since Massachusetts' law allows for health care costs to be recouped from an individual's probate estate, the cash was awarded to the Division of Medical Assistance to pay for medical bills Daher incurred prior to her death in 2001.

See Jill Harmacinski, "Judge: State gets $178K found in safe," Eagle Tribune (Dec. 26, 2011).

Posted by Brian Spring, Associate Editor, Wealth Strategies Journal.

IRS Releases Publication 596, Earned Income Credit (EIC)

Mon, 30 Jan 2012 12:12:36 -0500

The IRS has released Publication 596, Earned Income Credit (EIC), for use in preparing 2011 returns. The publication discusses who qualifies for the tax credit, the rules regarding individuals with qualifying children, how to figure and claim the credit, and detailed examples with filled-in schedules and worksheets.

See IRS Publication 596, Earned Income Credit (EIC) (Jan. 12, 2012).

Posted by Brian Spring, Associate Editor, Wealth Strategies Journal.

How to Contribute to a Roth IRA Even if You Make Too Much Money

Mon, 30 Jan 2012 11:56:26 -0500

Forbes has published an article by Ashlea Ebeling discussing how individuals, whose income is too high to contribute to a Roth IRA, may be able to contribute directly to a Roth IRA by opening a traditional IRA and then converting it to a Roth IRA.

See Ashlea Ebeling "The Serial Backdoor Roth, A Tax-Free Retirement Kitty," Forbes (Jan. 20, 2012).

Posted by Brian Spring, Associate Editor, Wealth Strategies Journal.

Estate Planning and Community Property Seminar is Feb. 24, 2012

Sun, 29 Jan 2012 18:28:09 -0500

The Fourth Annual Estate Planning and Community Property Seminar will be held on February 24th at Texas Tech University Law School. Speakers will include: Professor Mark Ira Bloom, Professor Jeffrey N. Pennell, William D. Pargaman, Professor Gerry W. Beyer, and Mike V. Bourland. The topics covered will include: powers of appointment, the future of estate planning, recent Texas legislative and judicial actions in estate planning, and finally estate and income tax planning with mineral interests. The brochure for the event may be viewed here.

See Gerry W. Beyer, "Fourth Annual Estate Planning & Community Property Law Journal Seminar," Wills, Trusts & Estates Prof Blog (Jan. 23, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

Right of Tax Portability for Married Couples Who Suffer the Loss of a Spouse

Sat, 28 Jan 2012 22:06:32 -0500

Under our tax laws, married couples can gift up to $10.24 million together, or up to $5.12 million each, during their lifetimes, or at their death with no tax liability. Beginning 2011, if the surviving spouse files form 706 within nine months after the other spouse's death, the $5.12 million lifetime benefit may be transferred and added to the surviving spouse's lifetime maximum limit, for a total of $10.24 million. A six month extension is allowed if requested within the nine months after the death of a spouse. Form 706 is about 28 pages long and is very complicated to file, the attorneys fees can end up costing anywhere from $3,000 to $10,000. Taxpayers may want to opt the do it yourself option where they would simply download form 706 from the IRS website along with a lengthy explanation as to how to file it. Two other options to save some money would be hire a licensed CPA, and try to diversity your investments within a few companies.

See Deborah L. Jacobs, "Tax break may be boon to lawyers" Forbes.com, (Jan. 18, 2012).

Posted by EJ Antezana, Associate Editor, Wealth Strategies Journal

Pension Reps Call For Tax-Deferred Annuity Plan Documents To Be Included in Preapproved Plan Program

Wed, 25 Jan 2012 18:07:05 -0500

Representatives of the National Tax Sheltered Accounts Associations and the American Society of Pension Professionals & Actuaries have urged the IRS to include Section 403(b) plan documents in the agency's pre-approved plan program. The sponsors of these plans include public schools and charitable organizations. The reps are concerned that if the IRS does not add 403(b) arrangements to the pre-approved program, it would do a major disservice to the 403(b) community and the goal of compliance with tax laws.

See Brian H. Graff, et al, "Tax Deferred Annuity Plan Documents Should Be Included In Preapproved Plan Program, Pension Reps Say," Tax Notes (2012 TNT 15-20, Jan. 24, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

Federal Circuit Clarifies Third-Party Return Information Disclosure Exception

Wed, 25 Jan 2012 17:52:44 -0500

A recent order by the Federal Circuit has helped bring some clarity to the availability of non-party taxpayer information in tax litigation. The order establishes firmer guidelines for when otherwise nondisclosable return information should be released by the federal government. The per curiam order citation is In Re United States, No. 992, 2011-M992 (Fed. Cir. 2012).

See Jeremiah Coder, "Federal Circuit Clarifies Third-Party Return Information Disclosure Exception," Tax Notes (2012 TNT 15-4, Jan. 23, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

Work Product Privilege Waived For Penalty Defense Documents

Wed, 25 Jan 2012 17:33:37 -0500

The Court of Federal Claims has held that a taxpayer waived possible work product privilege for tax reserve workpapers by claiming reliance on the advice of its independent auditor in order to avoid penalties. The case is an example of where a party cannot "use privilege as a shield but avoid it as a sword."

See Jeremiah Coder, "Work Product Privilege Waived For Penalty Defense Documents, Court Holds," Tax Notes (2012 TNT 15-1, Jan. 23, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

OECD Recommends Measures to Promote Growth While Reducing Inequality

Wed, 25 Jan 2012 16:47:23 -0500

The Organization for Economic Co-operation and Development (OECD) has released a chapter from an upcoming report, "Economic Policy Reforms 2012: Going for Growth." The chapter examines the drivers of income inequality and the effects of tax and transfer systems. It also evaluates tax and other measures that government can use to boost economic output.

See David Stewart, "OECD Recommends Measures to Promote Growth While Reducing Inequality," Tax Notes (TNT 2012 15-6, Jan. 23, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.

Tax Court Decision Concerning Conservation Easements

Wed, 25 Jan 2012 14:43:24 -0500

Peter J. Reilly discusses a recent Tax Court holding concerning the termination of conservation easements. See Kayln M. Carpenter, et al. v. Commissioner, TC Memo 2012-1. He discusses how the IRS attacked the conservation easements based upon a clause in the contract instead of challenging the valuation of the easements. The Tax Court ruled that mutual consent of the parties to extinguish the conservation easements would not guarantee that the property would continue to be protected.

See Peter J. Reilly, "Is Tax Court Decision End of Colorado Conservation Range War?" Forbes.com, Jan. 18, 2012.

Posted by William Alan Nelson II, Associate Editor, Wealth Strategies Journal.

Costs of Long-Term Care

Wed, 25 Jan 2012 14:29:49 -0500

A recent Northwestern Mutual study reported that two thirds of people 65 or older will require long-term care at some point in their lives. The study surveyed thousands of home health care organizations, assisted living facilities, and nursing homes. For home healthcare, the highest rate for certified home health aides was in Sioux Falls, South Dakota, while the lowest rate was in New Orleans, Louisiana. For assisted living facilities, Bethesda, Maryland, has the highest average monthly cost for a single-occupancy unit, while Milwaukee has the lowest average monthly cost. For nursing homes, the most expensive daily rate for a private room was in Anchorage, Alaska, while the least expensive was in Corpus Christi, Texas.

See Anne Tergesen, "The High Cost of Long-Term Care," Wall Street Journal, Jan. 17, 2012.

Posted by William Alan Nelson II, Associate Editor, Wealth Strategies Journal

Impact of New Medicare 3.8% Net Investment Tax

Tue, 24 Jan 2012 14:31:42 -0500

Kara Friedenberg discusses the future impact of the new tax imposed by the Patient Protection and Affordable Care Act. The law imposes on individuals, estates, and trusts a new Medicare tax equal to 3.8 percent on net investment income. Friedenberg explores how the the tax will apply to the alternative investments industry as well as whether the distributive share of income received from funds, management companies, and general partner entities will be subject to the tax. Lastly, she discusses options, structures, and issues that should be considered going forward. The full article may be viewed at Tax Analysts.

See Kara Friedenberg, "Impact of the 3.8 Percent Next Investment Tax on Alternatives," Tax Notes (2012 TNT 14-12, Jan. 4, 2012).

Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.