Monday, March 13, 2017

829 F.3d 77 (1st Cir. 2016)
(cert. denied 1/9/2017)

Trusts and Estates practitioners often focus solely on the Tax Code found in Title 26 of the United States Code and ignore other parts of the United States Code (U.S.C.). However, it is a mistake to do so as Marci McNicol learned first-hand. In this case, the Federal Priority Statute found in 31 U.S.C. § 3713 came into play to impose liability on Marci for the decedent’s unpaid Federal income tax liability.

Here, at the time of his death, the decedent owed over $300,000 in Federal income taxes. As a result of this and other liabilities, the decedent’s estate, which consisted almost entirely of interests in two closely held companies, was insolvent. Marci, the decedent’s widow, transferred decedent’s interest in one of the companies to herself even before the court had appointed her as executrix of the decedent’s estate. Once she was appointed executrix of decedent’s estate, Marci transferred the other company to herself. Both transfers were without consideration at a time when Marci knew of her husband’s unpaid tax liability. (more…)

Thursday, March 9, 2017

PLR 201642019

Not only is strict adherence to the structure set out in prior favorable rulings best, it is essential when it comes to obtaining a favorable ING ruling. The provisions in the trust document need to carve a very fine line through the grantor trust/incomplete gift rules to obtain a favorable ING ruling. The goal is to have the Service rule that a trust is not a grantor trust for income tax purposes yet not a completed gift for gift tax purposes and included in the grantor’s estate to get a basis adjustment at death.

The earliest ruling, ILM 201208026, fell short of a favorable ruling with the Service finding that the retained testamentary power of appointment was insufficient to avoid a completed gift. By 2014, practitioners had carefully studied this early ruling and devised a set of trust provisions that successfully walked the tight rope through the grantor trust/incomplete gift rules to obtain favorable rulings in a series of private letter rulings. Each of those rulings contained the following elements:

• The Trust was created in an asset protection jurisdiction;
• The grantor was a discretionary beneficiary;
• A distribution committee with at least two adverse parties, acting unanimously, had total distribution discretion for distributions among the grantor and the other beneficiaries;
• A corporate trustee would make discretionary distributions among the grantor and the grantor’s descendants, as directed by a majority of the distribution committee, with the grantor’s consent but without the participation of any recipient;
• A corporate trustee would make discretionary distributions to the grantor’s descendants as directed by the grantor in a non-fiduciary capacity for the health, education, maintenance and support of any such descendant; and
• The grantor retained a broad testamentary special power of appointment.

Now in PLR 201642019, the Service has singled out one of those prior previously favorable rulings (identified in this ruling as PLR 140408-13) that deviated from this formulaic approach in a seemingly small way, and revoked that prior favorable ruling. This deviating trust provision directed the trustee to distribute the trust property to the grantor in the event (1) neither of grantor’s children was serving as a member of the Distribution Committee or (2) there remained only one member of the Distribution Committee. The Service now ruled that this provision resulted in the grantor having a reversionary interest in the trust corpus far exceeding the 5% threshold in § 673 of the Code. As a result the trust was a grantor trust for income tax purposes under § 673. In fact, the Service valued this reversionary interest at 100% of the value of the trust corpus because the members of the Distribution Committee could resign at any time, terminating the trust and distributing the whole trust corpus to the grantor.

The moral of this ruling is that when you attempt to copy a favorable tax structure, don’t vary the terms.

Thursday, March 2, 2017

IRS Notice 2017-12

The Service issued FAQs in June of 2015 to let practitioners know that they were no longer routinely issuing closing letters. The Service instructed practitioners that they would now have to request such a closing letter, but could not do so until 4 months after filing the estate tax return. Their goal was to reduce the amount of work the Service needed to complete as a cost cutting measure. However, taxpayers need closure and the requests for closing letters almost became routine. Because so many practitioners were routinely requesting closing letters, the Service let it be known informally, with a posting on its website, that a transcript could be requested, and would be an acceptable substitute for an estate tax closing letter. But requesting such a transcript has not been a simple matter, with many groans of frustration along the way. The Service has now provided guidance in this Notice 2017-12 on this alternative method of confirming that an estate tax return examination is closed.
Although practitioners may prefer to obtain a closing letter, the Service points out in this Notice that an estate tax closing letter does not foreclose the Service from reexamining an estate tax return at a later date. Instead, a closing letter simply indicates that the estate tax return has been accepted, either as filed or after an adjustment to which the estate has agreed. After an estate tax closing letter has been sent to the taxpayer, for example, the Service may still audit the estate tax return that makes a portability election up until the statute of limitation has run on the estate tax return of the surviving spouse to determine the surviving spouse’s applicable exclusion amount.
After receiving so many requests for a closing letter, the Service began to realize that executors, state taxing authorities and probate courts want to know that an estate tax return has been accepted by the Service. Therefore, the Service now formally announced in this Notice that an “account transcript” is an alternative method of obtaining that finality without the need for the Service to issue a closing letter. An account transcript is a computer generated report that contains detailed information about the procedures that have been undertaken by the Service in handling a given estate tax return. Among the many details contained in this transcript is the date on which the estate tax examination was closed, identified by the computer code of “421”. In the Service’s view, the account code “421” on an account transcript is the functional equivalent to an estate tax closing letter, and should provide the same level of finality required by some state taxing authorities and probate courts.
This Notice instructs the practitioner that an account transcript can be obtained without charge by faxing Form 4506-T, Request for Transcript of Tax Return, to the Service at the fax number provided on the Form. (This is the same Form that is used to request a transcript for any type of tax return.) This Form should not be filed any earlier than four months after the estate tax return has been filed. Letters testamentary or of administration showing the authority of the executor must be provided with the Form. If the account transcript is being requested by a taxpayer’s representative, a Form 2848, signed by the taxpayer specifically authorizing the representative to request the account transcript, must also be sent with the Form. Even though there is a place on the website under “Tools” to “Get a Tax Transcript”, the taxpayer cannot currently obtain either an estate tax closing letter or an account transcript online. The remaining question is whether state courts and financial institutions will accept the account transcript or whether these entities will continue to require an estate tax closing letter to evidence acceptance of an estate tax return. If an estate tax closing letter is required, an estate tax closing letter may still be requested, and this Notice instructs that the way to do so is by calling the IRS at 866-699-4083.

Tuesday, February 21, 2017

The 7520 rate for March 2017 has decreased to 2.4%.

The March 2017 Applicable Federal Interest Rates can be found here.

Wednesday, February 1, 2017

Bryan Cave’s Tax Exempt and Charitable Planning Team posted the following:

WASHINGTON — The IRS announced today the release of an updated Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, that will help tax-exempt organizations avoid common mistakes when filing their annual return.

The updated Form 990-EZ includes 29 “help” icons describing key information needed to complete many of the fields within the form. The icons also provide links to additional helpful information available on These “pop-up” boxes share information to help small and mid-size exempt organizations avoid common mistakes when filling out the form and filing their return.

“We’ve been reviewing the areas of the form where exempt organizations encounter the most trouble,” said IRS Commissioner John Koskinen. “One out of three paper filers has an error on their form. After reviewing these trouble spots, we developed this new option to help groups navigate the form. This common-sense approach is designed to make it easier for exempt organizations to avoid problems up front – and avoid getting a follow-up contact from the IRS.”

On the new form, the help icons are marked in boxes with a blue question mark. The icons and underlying links work on any device with Adobe Acrobat Reader and Internet access. Once completed, filers can print Form 990-EZ and mail it to the IRS.

Although many large exempt organizations are required to file Form 990-series information returns electronically, the IRS encourages all exempt organizations to consider filing electronically.

In 2016, the error rate for electronically-filed 990-EZ returns was only 1 percent, compared to the 33 percent error rate in paper-filed returns. In 2016, the IRS processed over 263,000 Forms 990-EZ, with the majority of the filings – 139,000 — on paper.

A list of providers assisting with electronic filing is available on

Exempt organizations should keep in mind that the new help icons do not replace the Form 990-EZ instructions. Filers should review the Form’s instructions when completing a return and use the help icons as an additional tool.

The IRS also reminds exempt organizations that Form 990-series returns are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, making May 15, 2017, the deadline to file for tax year 2016.

Monday, January 23, 2017

The 7520 rate for February 2017 has increased to 2.6%.

The February 2017 Applicable Federal Interest Rates can be found here.

Thursday, January 19, 2017

What he wants to accomplish vs. what he needs to accomplish…

As the United States rings in a New Year, it also welcomes a new president. All eyes are trained on Washington in anticipation of what President-elect Donald Trump will tackle in his first 100 days in office. Trump’s initial success will depend on how well he defines his own agenda and how he navigates the difference in details between his goals and the policy priorities of Congressional Republicans. Trump will also need to divide his political capital between the things his administration wants to do versus what it needs to do in the New Year.

Click here to read the Alert by David C. Russell and Miguel Rodriquez.

Tuesday, January 3, 2017

On February 13, 2016, Doug Stanley, partner in the Private Client Services group at Bryan Cave, and Justin Flach of The Commerce Trust Company (an alumnus of the Bryan Cave Private Client Services group), will present “Creating A Living Legacy”, addressing estate planning basics to a group of artists.  The presentation is hosted by the Volunteer Lawyers and Accountants for the Arts and will be held at the Regional Arts Commission, 6128 Delmar, St. Louis, Missouri.

Tuesday, December 20, 2016

The 7520 rate for January 2017 has increased to 2.4%.

The January 2017 Applicable Federal Interest Rates can be found here.

Tuesday, December 20, 2016

(This is an updated post from December 2015)

With the end of the year approaching, we thought now would be a good time to re-post and update this blog from the end of 2015.

For 2017, the annual exclusion gift amount will remain the same at $14,000 but the lifetime gift and estate tax exemption will increase to $5,490,000 (up from 2016’s $5,450,000).

With fourteen days left in the year, many people are still planning how to make 2016 gifts, whether by making “annual exclusion” gifts of $14,000 per beneficiary, or by taking advantage of the 2016 gift tax exemption amount of $5,450,000.  Whatever the reason for the last-minute gifting, as the end of the year approaches, people may be tempted to make a “quick and easy” gift to their beneficiaries by simply writing a check. As the year draws to a close, however, if your gift is dependent on utilizing 2016 tax law, beware of the potential trap of making a gift by check.

A gift is not complete for tax purposes until the gift is no longer revocable.  However, if you write someone a check, until that check clears, you could always “revoke” the check by alerting your bank to stop payment, or by emptying your account of sufficient funds to pay on the check.   Until the check clears the bank, your gift is still revocable.  Therefore, if your beneficiary doesn’t deposit the check in time for the banking system to clear the check, your gift may not be considered irrevocable until 2017, and you have therefore made a gift in 2017 instead of 2016.

If you are planning to make 2016 gifts over the next 10 days by means of a check, be wary and let your beneficiaries know that they need to deposit that check as soon as possible.  Better yet, make the gift by means of a cashier’s check, which is considered irrevocable as soon as you hand it over.  That way, you don’t have to rely on the promptness of your beneficiaries’ next trip to the bank, and the promptness of the banks in processing the checks.