Friday, November 30, 2012

On Thursday, Treasury Secretary Timothy Geithner met with Republican Congressional leaders and proposed a two-step process to raise $1.6 trillion in new revenue. The first step would net $960 billion immediately by allowing the Bush-era tax cuts to expire on top earners along with raising rates on dividends and capital gains. Another $600 billion would come from overhauling the tax code next year to reach the $1.6 trillion goal. Geithner also pressed for a patch of the alternative minimum tax and the extension of targeted business tax breaks at a cost of $236 billion.

Under Geithner’s proposal, the estate tax would return to its 2009 levels, when a 45 percent rate was imposed on inheritances worth more than $3.5 million.

Geithner also proposed deferring the scheduled $109 billion sequestration cuts. He proposed appropriating an additional $25 billion in stimulus spending, above the current baseline, for six years, with $50 billion in fiscal 2013 alone. He also called for an extension of expanded funding for unemployment benefits totaling $30 billion, and another $25 billion for the Medicare reimbursement rate. Geithner also took the unusual step of proposing an end to congressional approval of debt ceiling increases. Under Geithner’s plan, the president would have the authority to unilaterally raise the debt ceiling at any time. Congress could pass a resolution of disapproval, but it would require a two-thirds vote of both chambers to pass, and could still be vetoed. Following the meeting, Congressional Republican leaders Speaker John Boehner and Senate Minority Leader Mitch McConnell announced they were rejecting Geithner’s proposal and would continue negotiations with the White House next week.

 

Tuesday, November 27, 2012

Bryan Cave received numerous national and metropolitan rankings in the third edition of U.S. News Media Group and Best Lawyers® 2013 “Best Law Firms” rankings.

Bryan Cave’s National Trusts and Estates Law practice and its Atlanta, St. Louis, and Washington D.C. Trusts and Estates Law practices were all named to the First-Tier rankings.

The analysis of more than 10,000 law firms by practice area are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations and review of additional information provided by law firms as part of the formal submission process. All data was combined into an overall “Best Law Firms” score for each firm.

The national first-tier rankings are featured in the November 20 issue of U.S.News & World Report’s “Money” issue. The rankings can be viewed in their entirety here and Bryan Cave’s rankings can be viewed here.

Monday, November 26, 2012

On Monday and Tuesday last week, while President Obama was traveling in Asia, congressional and White House staff met regarding the latest fiscal cliff negotiations. The major “fiscal cliff” issues which must be dealt with before January 1 are income tax rates and automatic spending cuts. In addition to the fiscal cliff negotiations, other issues with a January 1 deadline which remain unresolved include the alternative minimum tax, unemployment benefits, payroll taxes, Medicare reimbursement rate, as well as the debt ceiling, which the Treasury Department says Congress must raise in the first quarter of 2013. President Obama is expected to reconvene congressional leaders next week to continue the negotiations.

For more information on the Fiscal Cliff, see our prior posts here and here.

Friday, November 23, 2012

The 7520 rate for December 2012 has increased to 1.2%.

The December 2012 Applicable Federal Rates can be found here.

Thursday, November 22, 2012

From all of us in the Bryan Cave Private Client group!

Monday, November 19, 2012

The Tax Court in Neff v. Commissioner, TC Memo 2012-244 (8/27/2012) recently ruled on the income tax consequences of the termination of a split dollar life insurance arrangement (“SDLIA”), in ruling that the payment of a discounted amount by the employees on the termination of the SDLIA resulted in the recognition of income to the employees to the extent of the difference between the amount owed to the corporation under the SDLIA and the amount the employees paid. The Tax Court did not address the issue of the extent the equity portion of a SDLIA may be subject to income taxation on the termination of the SDLIA as that issue was not raised by the Service nor addressed by the Tax Court.

This case involves a pre-final regulation SDLIA to which the final regulations do not apply. Rather Rev. Ruls. 64-328 and 66-110 and Notice 2002-8 apply to determine the income tax consequences of the rollout of the SDLIA. Here the two employees/owners of the J & N Management Company (the “Company”) entered into split dollar arrangements whereby the Company was obligated to pay the premiums on six life insurance policies owned by the employees and family limited partnerships of the employees. In return, the Company was entitled to receive the lesser of the premiums paid and the cash value of the policies on the termination of the SDLIA. By the end of 2003, the Company had paid $842,345 in premiums and the cash value of the policies was $877, 432. The employees and the Company orally agreed to terminate the SDLIA with the employees paying the Company the discounted present value of the right to receive the premiums paid at the death of the employees. However, the Company was entitled to reimbursement of the premiums paid on the termination of the policy and were not required under the terms of the SDLIA to wait until the death of the employee to recover those funds. As a result of discounting the value of the Company’s entitlement, the employees paid the Company $131,969 instead of the $842,345 owed to the Company on termination of the SDLIA, and the Company released its interest in the policies. The IRS then included the difference of $710,376 in the taxable income of the employees for 2003 and assessed an income tax deficiency. (more…)

Friday, November 16, 2012

Denver Partner Michael Bland was recognized in the November issue of 5280 Magazine and ColoradoBiz Magazine as one of Denver’s Five Star Wealth Managers, by Five Star Professional, an independent research organization that recognizes professionals in the legal, financial services and accounting industries who provide exceptional service to their clients. Bland was selected for the second year in a row as a Five Star Wealth Manager, an award given to less than 7 percent of wealth managers in the Denver area.

Friday, November 16, 2012

On Friday, President Obama and Vice President Biden convened Majority Leader Reid, Minority Leader McConnell, Speaker Boehner and Minority Leader Pelosi for an initial discussion on how to avoid the combination of tax hikes and spending cuts that make up the “fiscal cliff.” While President Obama has stated his goal is $1.6 trillion in higher revenue, there is no agreement on how much deficit reduction the negotiators want to achieve and how much of that should come from taxes. In the event an agreement is not reached, the parties are already discussing fallback plans for $60 billion to $100 billion in deficit reduction to replace automatic spending cuts set to take effect in January.

For more information on the Fiscal Cliff, see our prior post.

 

Tuesday, November 13, 2012

UPDATE: On November 13, in an Action on Decision (“AOD”) appearing at 2012-46 IRB, the IRS did not acquiesce to the Tax Court’s decision in Wandry upholding fixed dollar gifts of LLC interests. An AOD is a formal memorandum prepared by the IRS Office of Chief Counsel that announces the future litigation position the IRS will take with regard to the court decision addressed by the AOD.

UPDATE:  On October 17, an Order dismissing the appeal was filed, following a stipulation by the parties on October 16 that the case be dismissed with prejudice.

UPDATE:  Notice of Appeal of the Wandry case was filed with the Tax Court, with the Appeal going to the 10th Circuit Court of Appeals.  Read about the initial holding here.

For the first time, in Wandry v. Commissioner, the Tax Court approved a defined value formula clause without a charitable component. In this federal gift tax case, the Tax Court determined, in a memorandum opinion, that the taxpayers’ respective defined value gift clauses were enforceable under state law, were defined value gifts of LLC membership interests instead of gifts of percentage interests and, thus, were to be respected for federal gift tax purposes.

Summary

Albert and Joanne Wandry (“Petitioners”) and their children formed Norseman Capital, LLC (“Norseman”). The Petitioners wanted to make gifts to their children and grandchildren using their annual exclusion and lifetime exemption amounts, so they consulted a tax attorney to begin a gift-giving program. On January 1, 2004, the Petitioners transferred gifts of specific dollar amounts of membership units in Norseman to their children and grandchildren. The gift documents stated that if the IRS challenged the eventual valuation of the units, the capital accounts would be adjusted so that the number of units transferred equaled the specified values. An independent appraiser determined the value of the LLC and the Petitioners’ CPA used the appraisal to report the number of units transferred on the Petitioners’ gift tax returns. However, the IRS determined that the values of the gifts exceeded the Petitioners’ Federal gift tax exemptions and issued a deficiency notice on February 4, 2009. (more…)

Monday, November 12, 2012

Estate planning practitioners have long focused on the estate tax cost of a premature death in terms of the potential increase in estate tax. Now, litigation practitioners are focusing on it, as well.

In Beim v. Hulfish, Docket #A-5947-10T4 (Superior Ct. NJ, 5/29/2012), the plaintiffs succeeded in being able to assert this additional estate tax cost as an additional measure of damages in their wrongful death claim.

John Kellogg was age 97 in January of 2008 when he was involved as a passenger in an auto accident that resulted in his death, and led to the filing of this wrongful death action. As a result of his death in 2008 (when the estate tax exemption was $2 million), the Kellogg estate was required to pay almost $1.2 Million in estate tax, at least half of which would not have been payable if he had died in 2009 (when the estate tax exemption increased to $3.5 million) and all of which would not have been payable had he died in 2010 (when the estate tax exemption was increased to $5 million). (more…)