Wednesday, October 19, 2016

The 7520 rate for November 2016 has remained at 1.6%.

The November 2016 Applicable Federal Interest Rates can be found here.

Thursday, October 6, 2016

Rev. Proc. 2016-49

The recent issuance of Rev. Proc. 2016-49, which modifies and supersedes Rev. Proc. 2001-38, now puts the taxpayer in the driver’s seat. Recall that in Rev. Proc. 2001-38, the Service was providing relief for the surviving spouse when an unnecessary QTIP election was made, by treating such a QTIP election as though it had not been made. Practitioners began to question whether Rev. Proc. 2001-38 would render a QTIP election a nullity when made in order to qualify for a state marital deduction where such an election was not needed to reduce the Federal estate tax liability to zero. Then when portability came into the picture, the enhanced concern about basis adjustment at death drove practitioners to want to make a QTIP election even though not needed to reduce the estate tax liability, to permit the surviving spouse to make larger gifts that would not be subject to gift tax or solely to obtain a basis adjustment at death. Yet in view of Rev. Proc. 2001-38, it was not clear whether a QTIP election that did not result in a reduction in estate tax was viable.

Now the Service has solved this dilemma with Rev. Proc. 2016-49. A QTIP election will only be void if ALL of the following are satisfied:

  1. The estate did not exceed the applicable exclusion amount in any event so that a QTIP election would not reduce the estate tax liability.
  2. No portability election was effectively made, either because not actually made or because of a late filed return.
  3. The taxpayer notifies the IRS on a supplemental return that such a QTIP election previously made should be treated as void.
  4. The taxpayer provides sufficient evidence, which could consist of the return on which the
    unnecessary QTIP election was made, that the QTIP election was not needed to reduce the estate tax liability to zero based on the values as finally determined for estate tax purposes.

A QTIP election will not be treated as void where ANY of the following are true:

  1. A partial QTIP election was required to eliminate estate tax and the executor made a
    larger QTIP election than was necessary to reduce the estate tax liability to zero.
  2. The QTIP election was stated as a formula designed to reduce the estate tax liability to zero.
  3. The executor made a protection QTIP election.
  4. The executory made a portability election.

The taxpayer did not request that the QTIP election be treated as void and follow the procedure for having the election treated as void.

Monday, October 3, 2016

In a recent Tax Court decision, Harry H. Falk, and Steven P. Heller, Co-Executors, v. Commissioner of the Internal Revenue, the United States Tax Court ruled that in the case of the Madoff Ponzi scheme, an estate which paid estate tax on Madoff assets which subsequently have become worthless can claim a theft deduction.

James Heller, a New York state decedent, died in January 2008 owning a 99% interest in James Heller Family, LLC (the “LLC”).  The only asset held by the LLC was an account with Bernard L. Madoff Investment Securities, LLC.  In November of 2008, the Executors of Mr. Heller’s estate withdrew some money from the LLC’s Madoff account in order to pay estate taxes and other administrative expenses.  Shortly thereafter, the news of the Madoff Ponzi scheme became public. Suddenly, the LLC’s interest and the estate’s interest in the LLC became worthless.

In April 2009, the Executors of the Estate filed an estate tax return which included the decedent’s 99% interest in the LLC – as valued at the date of his death – in his gross estate.  But the estate also claimed a theft loss deduction relating to the Ponzi scheme in an amount equal to the difference between the values of the estate’s interest in the LLC at death and the estate’s share of the amount withdrawn from the LLC’s Madoff account.  The Internal Revenue Service issued a notice of deficiency, claiming the estate was not entitled to the theft loss deduction because the estate did not incur a theft loss.

Internal Revenue Code Section 2054 allows a deduction from the value of a gross estate of “losses incurred during the settlement of estates arising from…theft.”  The Internal Revenue Service argued that the LLC incurred the loss, not the estate, and as such the theft deduction is not appropriate.  However, the Court determined that the loss suffered by the estate related directly to its LLC interest, the worthlessness of which arose from the theft.  The theft extinguished the value of the estate’s LLC interest, thereby diminishing the value of the property available to the decedent’s heirs.  As such, the Court determined a theft deduction appropriate.

Tuesday, September 27, 2016




Both presidential candidates have proposed changes to the estate tax regime.  Coming as a surprise to nobody, the proposals are quite different. (more…)

Thursday, September 22, 2016



Based on the Consumer Price Index for the 12-month period ending August 31, 2016, Thompson Reuters Checkpoint has released their projected inflation-adjusted Estate, Gift, GST tax, and other exclusion amounts for 2017, as follows: (more…)

Tuesday, September 20, 2016

The 7520 rate for October 2016 has increased to 1.6%.

The October 2016 Applicable Federal Interest Rates can be found here.

Monday, September 19, 2016

One of the many requirements that a trust must meet in order for it to qualify as a Charitable Remainder Annuity Trust (“CRAT”) is the “Probability of Exhaustion Test”.  This test applies to CRATs whose annuity term is based on one or more lifetimes, and requires the likelihood that the charitable remainder beneficiary will not receive its interest in the trust be 5% or less.  If a trust fails the test, then the charitable remainder interest does not qualify for income, gift, or estate tax charitable deductions, and the trust is not exempt from income tax. (more…)

Wednesday, September 14, 2016


Effective September 2, 2016, the Internal Revenue Service formally put into place amendments to regulations that define who is married for tax purposes.   The new regulations finalize proposed regulations issued in 2015, with only a few minor changes.  The IRS Regulation states that it will interpret the term “husband and wife” as any two people who are married to each other, even if they are a same-sex couple. (more…)

Monday, August 22, 2016

The 7520 rate for September 2016 has remained at 1.4%.

The September 2016 Applicable Federal Interest Rates can be found here.

Monday, August 22, 2016



Michael Covak/ Getty Images is reporting that Amber Heard, who received a $7 million settlement in her divorce from Johnny Depp this week, is donating the entire $7 million settlement to charities with “a particular focus to stop violence against women” as well as the Children’s Hospital of Los Angeles.

In light of this newsworthy charitable donation, we thought now would be a good time to remind everyone of some of the basic income tax deductions available for gifts to charities. (more…)