Friday, September 20, 2013

The 7520 rate for October 2013 is increasing to 2.4%.

The October interest rates are as follows:



Thursday, September 19, 2013

The IRS this week released inflation-adjusted numbers for 2014 for several transfer tax items.  These include the following:

  • The unified credit and gift tax exclusion amount will increase in 2014 from $5,250,000 to $5,340,000
  • The generation-skipping transfer tax exemption will also increase in 2014 from $5,250,000 to $5,340,000
  • The gift tax annual exclusion will not increase–it will remain at $14,000
  • The gift tax annual exclusion for gifts to non-citizen spouses will increase from $143,000 to $145,000
Monday, September 16, 2013

Originally posted on

In Revenue Ruling 2013-17, the Internal Revenue Service provided clear guidance to define “spouse” for all purposes under the Internal Revenue Code. A “spouse” includes a same-sex spouse whose marriage is recognized by the state in which the marriage occurred. Use of this “state of celebration” rule will greatly simplify employee benefit plan administration for employers. However, the IRS indicated in this guidance that it will provide more direction on the impact of this definition on employee benefit plans.

How Did the IRS Define the State of Celebration Rule?

These are the bottom line holdings from the IRS guidance, which apply for all purposes under the Internal Revenue Code:

  • The terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes a marriage between individuals of the same sex.
  • A marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex will be recognized for Federal tax law purposes even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages. For example, same-sex marriage is not recognized in Missouri. However, a same-sex couple that marries in Iowa but lives in Missouri will be considered married for Federal tax purposes because the marriage is valid in Iowa where the marriage occurred.

Are Domestic Partnerships, Civil Unions or Similar Arrangements Considered Marriage?

No. For purposes of Federal tax laws, the IRS guidance is clear that these types of relationships are not considered marriage. Marriage for Federal tax law purposes does not include a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

What Does This Mean for Employee Benefit Plans?

The IRS indicated that it will issue additional guidance to address this issue. However, in the meantime, employers should begin to address the impact of this guidance on the taxation of benefits and the administration of spousal benefits under their plans. Here’s a brief issue list:

  • Qualified Plans – Retirement plans are required to provide spousal death benefit protections. A same-sex spouse must receive these mandated spousal benefits. Administration of retirement plans should conform to this new definition of spouse immediately.
  • Review definition of spouse in your plans. Amendments may be required to conform to this new guidance. We suspect that the next wave of IRS guidance may provide a retroactive amendment period and provide additional guidance on how to craft these amendments.
  • Issue a new Summary Plan Description or Summary of Material Modifications. Amendments to the plans will likely require changes to the summary plan descriptions. Participants should be timely advised of the changes.
  • Beneficiary Designations. In light of these changes, consider a campaign to have participants review and update beneficiary designations. The campaign could include information on this law change. For example, an employee who has a same-sex marriage must have the consent of his spouse to designate someone else, such as a child, as the beneficiary of his 401(k) account.
  • Cafeteria Plans – Additional IRS guidance should provide more information on how cafeteria plans should be amended and administered. There are plan administration changes that should be implemented now.
  • For purposes of paying premiums for health benefits for a same-sex spouse, the premiums may be made on a pre-tax basis. If your plan extends coverage to same-sex spouses, employees in a same-sex marriage should be permitted to pay for the coverage on a pre-tax salary reduction basis just as employees in opposite sex marriages do. Applying this change mid-year in 2013 may be challenging. However, efforts should be made to comply as soon as possible. This includes stopping the imputing of income outside a cafeteria plan on premiums paid by an employee for same-sex spousal coverage.
  • Claims for reimbursement of medical care expenses for a same-sex spouse may be permitted under health flexible spending account plans.
  • When applying the rules regarding reimbursements under a dependent care assistance plan, a same-sex spouse should be recognized.
  • Health Savings Accounts – A same-sex spouse will be recognized for purposes of determining eligibility to contribute and the contribution limit. This may catch some employees off guard since a marriage will be recognized retroactively. Additional guidance on this issue would be welcomed.

Open enrollment would be a great time to start educating employees on these issues and adjusting employer payroll and benefit administration systems. If that opportunity is passed, communication with employees on these issues may have to occur when new summary plan descriptions or summaries of material modifications are issued. Stay tuned for more information on this fast-developing area.

Tuesday, September 3, 2013

With research and drafting assistance from Washington University School of Law student, Kelsey DeLong.

In Estate of Lambur, the Missouri Court of Appeals addressed the issue of whether an attorney-in-fact is permitted to gift the principal’s property to herself when the gift is not expressly authorized in the power of attorney.

In 2005, Verna Irene Lambur (“Irene”) executed a durable power of attorney naming her nephew’s wife, Anna Stidham (“Anna”), and Jackie Johnson (“Jackie”) as her attorneys-in-fact. The power of attorney granted Irene’s attorneys-in-fact the following power:

“To establish, change or revoke survivorship rights in property or accounts, beneficiary designations for life insurance, IRA and other contracts and plans, and registrations in beneficiary form; to establish ownership of property or accounts in my name with others in joint tenancy with rights of survivorship and to exercise any right I have in joint property; to exercise or decline to exercise any power given to me to appoint property [sic]; to disclaim or renounce transfers to me of property; to make inter vivos gifts of my property to my lineal descendants, including my attorneys in fact, in amounts that are equal by line or class and in an amount for any person that does not exceed in any year the annual gift tax exclusion[.]”

Shortly after the execution of the power of attorney, Anna and Jackie transferred assets that Irene owned, individually, into two new accounts, each titled in the names of Irene, Jackie, and Anna, with rights of survivorship. Upon Irene’s death in May, 2005, the combined value the two accounts was $129,134.46. (more…)