Legislation

IRS Gives Surviving Spouses a Second (or Third) Bite at the Portability Apple

By Jeffrey Eisen

“Portability” is the ability of a surviving spouse to use not only his or her own estate tax exemption, but also some or all of the exemption of the first spouse to die, as long as the first spouse died in 2011 or later.  With the estate tax exemption for 2017 at $5,490,000, this can allow estates of nearly $11,000,000 to escape estate tax. While a full discussion of portability is beyond the scope of this post, suffice it to say that portability can save the day in one or more of these situations: if proper estate planning has not been done, if life insurance, IRAs or retirement plans left to the surviving spouse constitute a very large portion of a couple’s assets, or if a couple’s assets of any type are worth near the value of one exemption but less than both (e.g., $4,500,000 to $10,500,000).

The catch is that if the deceased spouse’s assets are worth less than his or her exemption amount, the deceased spouse’s executor has to file a federal estate tax return (Form 706) for the deceased spouse to “claim” the deceased spouse’s unused exemption and thus invoke “portability.”   This is the direct opposite of the normal rule that if a decedent’s estate is worth less than the estate tax exemption amount (after taking lifetime gifts into account), no estate tax return filing is necessary.  But if the deceased spouse’s executor does not file a timely estate tax return for the deceased spouse (nine months after the date of death, or an additional six months thereafter if a request for an extension was properly filed by the nine month deadline), the ability to use portability is permanently lost. (more…)

California State Board of Equalization Gutted

By Jeffrey D. Davine

The Taxpayer Transparency and Fairness Act of 2017

Established by the California Constitution in 1879, the California State Board of Equalization (the “BOE”) has been the agency charged with administering most of the taxes imposed by California.  In addition, the BOE was the tribunal whose function was to decide taxpayer appeals of decisions by the California Franchise Tax Board (the “FTB”) concerning income tax matters.  All of this is about to change with the passage of AB 102.  AB 102, which is named the “Taxpayer Transparency and Fairness Act of 2017” (the “Act”), was signed into law by Governor Brown on June 27th.  The Act effectively cuts the legs out from underneath the BOE.

Background

In March of this year, the California Department of Finance issued a derisive report asserting that the BOE misallocated tax revenues, used BOE employees to assist elected BOE members with political activities, and attempted to improperly affect BOE audits.  In response, and at the urging of the Governor, the Act was passed by the California Legislature. (more…)

Proposed IRS Regulations Could End Most Valuation Discounts for Family Entities

By Allan Cutrow, Jeffrey Eisen and S. Eva Wolf

On August 2, 2016, the Treasury Department issued proposed regulations under Section 2704 of the Internal Revenue Code. The proposed regulations, if adopted in their current form, essentially will eliminate all minority discounts or lack of control discounts and lack of marketability discounts for transfers between family members of interests in family-controlled businesses.

The proposed regulations accomplish this result in complex ways. But here are some points to consider as you decide whether to act quickly.

  1. The regulations are “proposed.” This means that they are not currently in effect. The Internal Revenue Service has scheduled a public hearing on the regulations in Washington, DC on December 1, 2016. They take effect when the IRS announces that they are “final.” Thus, these regulations could take effect shortly after the hearing, sometime in 2017, years from now, or never (in theory). The IRS may change the regulations in meaningful ways before adopting them as final. (more…)

Where Do You Think You’re Going?

By Jeffrey D. Davine

Maybe nowhere if you owe the IRS more than $50,000.

Congress recently passed H.R.22. It was signed by the President on December 4th and it became Public Law No: 114-94. The law is known as the “Fixing America’s Surface Transportation Act” (“FAST”).

For taxpayers who owe the IRS more than $50,000, the FAST Act might be more appropriately classified as the STOP Act because it may prevent them from leaving the country. (more…)

California Clarifies Investment Standards for Public Benefit and Religious Corporations

By Jeffrey D. Davine

Without a lot of fanfare, the California State Legislature recently passed a bill that seeks to provide some clarity for charities as to how they are supposed to invest their assets.

Assembly Bill 792 (“AB 792”) was passed by the California State Legislature in June, 2015, signed by Governor Brown in July, 2015, and will become effective on January 1st of next year. According to its author, it will assist California nonprofit public benefit and California religious corporations in making better investment decisions by clarifying California law regarding the investment of their assets. The hope is that this, in turn, will provide these entities with improved investment returns. (more…)