Federal Tax Update Presented by: Charles D. Fox IV cfox@mcguirewoods.com
1. State of the Union Surprise (January 17, 2015) President targets inherited assets in middle class tax reform 1
The Administration’s Estate Tax 2. Budget Proposals for Fiscal Year 2017 and Related Items (February 9, 2016) Obama Administration’s Budget Proposal for fiscal year 2017 could affect estate planning 2
2015 – 2016 Priority Guidance Plan 3. (July 31, 2015) Treasury Department and the Internal Revenue Service release their 2015 – 16 priority guidance plan 3
4. Revenue Procedure 2015-53, 2015-47 IRB 1 (October 21, 2015) IRS provides the 2016 inflation adjusted amounts for tax exemptions, deductions, brackets, and other items 4
5. Surface Transportation and Veterans Health Care Choice Improvement Act (Public Law 114-41) (July 31, 2015); Notice 2015-57, 2015- 36 I.R.B. 294 (August 21, 2015); and Notice 2016-19, 2016-9 I.R.B. (February 9, 2016) Enactment of consistency in basis legislation and subsequent developments 5
6. IRS Frequently Asked Questions on Estate Tax (June 18, 2015) IRS announces that taxpayers must now request closing letters for federal estate tax returns filed on or after June 1, 2015 6
7. Obergefell v. Hodges, 576 U.S. ___ (2015) U.S. Supreme Court holds same-sex marriage to be a fundamental right 7
8. T.D. 9725, 2015-26 I.R.B. 1122 (June 12, 2015) Final portability regulations are issued 8
9. Letter Ruling 201532002 (Issued April 29, 2015; released August 7, 2015) Estate granted extension to make portability election 9
10. Letter Ruling 201532017 (Issued April 20, 2015; released August 7, 2015) Estate granted extension of time to make reverse QTIP election with respect to marital trust 10
11. Letter Ruling 201537012 (Issued June 1, 2015; released September 11, 2015) Estate granted extension of time to file estate tax return to elect portability when the value of the estate did not exceed the basic exclusion amount minus the decedent’s taxable gifts 11
12. Letter Ruling 201604013 (Issued October 14, 2015; released January 22, 2016); Letter Ruling 201604014 (Issued September 2, 2015; released January 22, 2016); Letter Ruling 201605009 (Issued September 21, 2015; released January 29, 2016); Letter Ruling 201605010 (Issued September 30, 2015; released January 29, 2016); Letter Ruling 201605011 (Issued October 2, 2015; released January 29, 2016); Letter Ruling 201608008 (Issued November 6, 2015; released February 19, 2016); Letter Ruling 201608010 (Issued November 5, 2015; Released February 19, 2016) Extension of time to make portability election permitted 12
13. Letter Ruling 201605012 (Issued September 16, 2015; released January 29, 2016) Extension of time permitted to 2010 decedent’s estate to opt out of the estate ta x 13
14. Letter Ruling 201603004 (Issued August 11, 2015; released January 15, 2016) QTIP election is disregarded because the election was unnecessary to reduce estate tax liability to zero 14
15. Estate of Davidson v. Commissioner, T.C. Docket No. 13748-3; Estate of Donald Woelbing v. Commissioner (Tax Court Docket No. 30261-13, petition filed Dec. 26, 2013) and Estate of Marion Woelbing v. Commissioner (Tax Court Docket No. 30260-13, petition filed Dec. 26, 2013); Estate of Jack Williams v. Commissioner (Tax Court Docket No. 29735-13, petition filed Dec. 19, 2013 ) Developments in sweeping IRS attack on time- honored techniques 15
16. Letter Rulings 201510001 – 201510008 (Issued October 10, 2014; released March 6, 2015) Favorable rulings on incomplete non- grantor trusts 16
17. Cavallaro v. Commissioner, T.C. Memo 2014-189; appealed July 6, 2015 Appeal of case in which Tax Court held that husband and wife are liable for gift tax following company merger 17
18. Mikel v. Commissioner, T.C. Memo 2015-64 Court examines effect of trust in terrorem provision and arbitration provision on validity of Crummey powers 18
19. Steinberg v. Commissioner, 145 T.C. No. 7 (September 16, 2015) Value of a gift was decreased by the recipient’s assumption of potential estate liability by reason of gross up for gift tax paid under section 2035(b) if the donor dies within three years of the gift by applying the willing buyer and willing seller test combined with the IRSs actuarial mortality and interest tables 19
20. United States v. Marshall, 798 F.3d (5th Cir. August 19, 2015) Heirs are not liable for gift tax and interest beyond value of resulting indirect gift 20
21. Field Attorney Advice 20152201F (May 29, 2015) Statute of limitations does not run with respect to gift tax return filed by donor, because the donor failed to adequately disclose the donor’s transfer in two partnerships 21
22. Estate of Edward Redstone v. Commissioner, 145 T.C. No. 11 (October 26, 2015) and Sumner Redstone v. Commissioner, T.C. Memo 2015-237 (Dec. 9, 2015) Transfers by two brothers in same factual situation produce different gift tax results 22
23. New York State Department of Taxation and Finance Advisory Opinion TSB-A-15(1)M (May 29, 2015) Membership interest in a single member LLC, which is disregarded for income tax purposes, is not “intangible property” for New York State estate tax purposes 23
24. Anticipated valuation discount regulations under Section 2704 Expected new regulations will likely change the rules in the valuation of family limited partnerships and limited liability companies 24
25. Pulling v. Commissioner, T.C. Memo 2015-134 (July 23, 2015) Tax Court upheld taxpayer’s valuation of contiguous parcels of real estate, rejecting the IRS’ arguments that the properties should be valued as a single unit 25
26. Estate of Purdue v. Commissioner, T.C. Memo. 2015-249 Contribution of assets to a family-owned LLC was a bona fide sale for adequate and full consideration and the value of the LLC assets was excluded from the transferor’s gross estate 26
27. Mitchell v. Commissioner, 775 F.3d 1243 (10th Cir. January 6, 2015) Charitable income tax deduction for conservation easement denied because mortgage on property was not subordinate to easement 27
28. Balsam Mountain Investments, LLC v. Commissioner, T.C. Memo 2015-43 Partnership’s right to change boundaries of a conservation easement causes conservation easement to fail the definition of a “qualified real property interest” and the income tax charitable deduction was denied 28
29. Isaacs v. Commissioner, T.C. Memo 2015-121 Donation of twelve fossil trilobites disallowed as income tax charitable deduction because qualified appraisal requirements not met 29
Bosque Canyon Ranch, L.P. v. 30. Commissioner, T.C. Memo 2015-130 Income tax charitable deduction for conservation easement was denied 30
Estate of Schaefer v. Commissioner, 31. 145 T.C. No. 4 (July 28, 2015) Value of Net Income Only Charitable Remainder Unitrusts with Makeup Provisions would be calculated using the greater of five percent or fixed percentage amount 31
32. Minnick v. Commissioner, No. 13- 73234 (9th Cir. August 12, 2015) Court denies charitable deduction for conservation easement because outstanding mortgage on the underlying property was not subordinated at the time of the donation to the rights of the holder of the easement 32
33. Palmer Ranch Holdings Limited v. Commissioner, ___ F.3d ___ (11 th Cir. 2016) Court of Appeals reverses Tax Court’s valuation of conservation easement for income tax charitable deduction purposes 33
34. Letter Ruling 201528014 (Issued March 4, 2015; released July 10, 2015) Proposed severance of non-exempt marital share into two trusts containing different types of property, and subsequent disclaimer has no adverse estate and generation-skipping transfer tax consequences 34
35. Letter Rulings 201530008 – 201530013 (Issued December 8, 2014; released July 24, 2015); Letter Rulings 201531003 – 201531007 (Issued December 8, 2014; released July 31, 2015) Terms of settlement agreement with respect to a grandfathered GST Trust, including the division of the trust into separate trusts and construction of the phrase “by right of representation,” will not have any adverse generation-skipping transfer tax consequences 35
Letter Rulings 201509002 – 201509018 36. (Issued October 16, 2014; released February 27, 2015) and 201510009 – 201510023 (Issued October 16, 2014; released March 6, 2015) Plan for two similar GST trusts to make a coordinated sale of farm properties to a beneficiary will not cause either trust to lose GST exempt status 36
Letter Ruling 201525001 (Issued 37. March 12, 2015; released June 19, 2015) Division of GST-exempt trust into successor trusts will not alter GST- exempt status 37
Letter Ruling 201604001 (Issued 38. August 1, 2015; released January 22, 2016) Proposed division of irrevocable trust will not have adverse generation-skipping transfer tax purposes 38
Letter Ruling 201516020 (Issued 39. December 22, 2014; released April 17, 2015) Proposed division and modification of GST-exempt trust will not cause any loss of exempt status 39
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