Monthly Archives: August 2020

The IRS issued IR-2020-196 announcing that, as part of a continuing effort to combat abusive transactions, on August 31, 2020 the completion of the first settlement under its initiative to resolve certain docketed cases involving syndicated conservation easement transactions.

On June 25, 2020, the IRS Office of Chief Counsel announced that it would offer to settle certain cases involving abusive syndicated conservation easement transactions. Since then, Chief Counsel has sent letters to dozens of partnerships involved in these transactions whose cases are pending before the U.S. Tax Court.

The IRS will continue to actively identify, audit and litigate these abusive transactions as part of its vigorous effort to combat abuse in this area. These transactions undermine the public's trust in tax incentives for private land conservation and in tax compliance in general. Ending these abusive schemes remains a top priority for the IRS. The IRS continues to strongly recommend that participants seek the advice of competent, independent advisors in considering the potential resolution of their matter.

This week, the first settlement under the terms of the initiative was finalized. Coal Property Holdings, LLC and its partners agreed to a disallowance of the entire $155 million charitable contribution deduction claimed for an easement placed on a 3,700- acre tract of land in Tennessee. On October 28, 2019, the Tax Court issued its Opinion (153 T.C. 126) granting the government’s motion for partial summary judgment holding that the "judicial extinguishment" provisions of the easement deed did not satisfy the requirements of section 1.170A-14(g)(6), Income Tax Regs.

Under the terms of the settlement, the investor partners were permitted to deduct their cost of investing in the conservation easement transactions and paid a 10 percent penalty, whereas the promoter partner was denied any deduction and paid a 40% penalty. The taxpayers also fully paid all tax, penalties, and interest in conjunction with the settlement. The settlement will be reflected in a stipulated decision document entered by the Tax Court and in a separately entered closing agreement. A public statement acknowledging the settlement was part of the agreement between the IRS and the taxpayer.

IRS Commissioner Chuck Rettig thanked the trial team for their exceptional dedication and work on the case: “The IRS is pleased that the partnership in the Coal Property transaction has agreed to this settlement, and we encourage other participants in qualifying easement cases to accept the terms of the Chief Counsel’s initiative,” Rettig said.

Coal Property was represented by Christopher S. Rizek and Scott D. Michel of the Washington, D.C. law firm Caplin & Drysdale. “In light of the significance of the Court’s ruling on the perpetuity issue, our client decided to take advantage of an assured penalty reduction in the IRS initiative and settle this matter under the IRS’s terms, and it is pleased that this case is resolved,” Rizek said.

Have IRS Tax Problem?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Read more at: Tax Times blog

Joe Biden has a double-digit lead in some polls and a number of Senate seats may turn blue as well, giving the Democrats a majority in Congress. If all that was to come to fruition, there would be major tax law changes.

Income Tax Changes 

Biden prefers that increasing taxes on America’s richest workers. He’d do this by re-raising the top marginal income-tax bracket from 37% to 39.6%. If you recall, the TCJA lowered the top marginal bracket from 39.6% to 37% in 2018. For the 2020 tax year, this top marginal rate is applicable to earned income above $518,400 for single lers and over $622,050 for married couples ling jointly. 

Biden is also in favor of increasing the capital gains tax on filers with incomes above $1 million. Presently, short-term capital gains are taxed at the ordinary income tax rate, whereas long-term gains are taxed at 0%, 15%, or 20%, depending on a ler’s income. The 20% rate is applicable to single and married couples ling jointly with earned income above $441,450 and $496,600,respectively, in the 2020 tax year. Biden’s proposal calls for filers with over $1 million in income to pay ordinary tax rates on all their gains, regardless of holding period, at a rate of 39.6%.  So if you have appreciated stocks that you are likely to be selling in the next several years, sell them now. If you do, postpone capital losses until January so you can use them against gains occurring in higher-tax years. 

Increase in the Corporate Tax Rate

The present corporate tax rate is 21%. Under the Biden tax plan, the corporate tax rate would be increased to 28%, which is still well below where it was during the Obama presidency. 

Estate Tax Changes

2020 may be the last year to benefit from current estate tax exemptions.  Biden’s tax platform appears to favor an increase in the so-called “wealth tax”, which can be achieved by a reduction in the estate tax exemption, as a smaller exemption leads to more estate tax. 

The estate tax exemption’s current level is $11.58 million per individual. This means that an individual can give away USD $11.58 million ($23.16 million for married couples) to others during their lifetime or at death without being subject to gift or estate taxes. Without congressional action, these amounts are set to continue to increase with inflation through 2025, after which they will decrease back to about $5 million per individual. With congressional action, it’s likely that this “sunset” will come sooner, and that the exemption could be set even lower, under a Democratic administration or Congress. 

While Biden has not committed to supporting all recommendations, the Biden-Sanders Unity Task Force has recommended returning the estate tax regime to the “historical norm.” This could mean restoring the exemption threshold to the 2009 level of $3.5 and it could also return to  an estate tax rate increase back to the 45% rate in effect in 2009.

Estate Tax Planning Opportunities for Business Owners

This is a good time for clients with $11 million or more as individuals or over $23 million as a couple to consider gifting today by using their high exemption. If you do not use the current increased exemption you may lose it. Proactive gifting today using the current higher exemption by transferring the incremental amount out of your estate is a great way to transfer millions of dollars on an estate tax advantaged basis. 

We recommend against procrastinating until the makeup of the Congress and White House is determined in November. There is no actual deadline to get started, but any gifts you want to make this year will need to be completed by December 31st. Gift planning is best done very carefully, and it can take time to organize things properly with an experienced tax attorney.

See also our post Covid 19 Gives Rise to Estate & Family Planning Opportunities for estate planning opportunities caused by Covid 19.

  

Read more at: Tax Times blog

On its website, the IRS has provided foreign trusts, and U.S. owners of such trusts, with a summary of their existing information reporting requirements. 

The IRS notes that failure to satisfy these information reporting requirements can result in significant penalties.  

A U.S. owner of a foreign trust is required to file Form 3520 when the U.S. owner:

• Creates a foreign trust, transfers money or property to a foreign trust, or makes a loan to a foreign trust; 

• Receives distributions from a foreign trust;

• Receives the uncompensated use of property belonging to a foreign trust; 

• Receives a loan from a foreign trust; or 

• Is treated as a “trust owner” under the grantor trust rules (Code Sec. 671 - Code Sec. 679).

Generally, Form 3520 is due by the 15th day of the fourth month following the end of the U.S. person’s tax year (April 15 for calendar year taxpayers). This due date can be extended. If the U.S. person requests an extension to file their income tax return, the U.S. person should be sure to check Form 3520, Box 1k, and enter the form number of their income tax return to avoid a late filing penalty for Form 3520.

A foreign trust with a U.S. owner is required to file Form 3520-A. However, a U.S. owner of a foreign trust should ensure that the foreign trust timely files a complete and accurate Form 3520-A and furnishes the required annual statement to the foreign trust’s U.S. owner to avoid penalties for the foreign trust’s failure to timely file a Form 3520-A.

If a foreign trust fails to file a Form 3520-A, the U.S. owner must complete and attach a substitute Form 3520-A to the U.S. owner’s Form 3520 by the due date of the U.S. owner’s Form 3520 (April 15 for calendar year taxpayers) in order to avoid being subject to a penalty for the foreign trust’s failure to file a Form 3520-A.  

Generally, Form 3520-A is due by the 15th day of the 3rd month (March 15 for calendar year taxpayers) after the end of the trust’s tax year. Taxpayers can get an automatic 6-month extension to file Form 3520-A by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns. Form 7004, like Form 3520-A, must be filed under the foreign trust’s EIN. 

Also, each year a U.S. person who is the beneficiary of a foreign grantor trust should receive, from the foreign trust, a Foreign Grantor Trust Beneficiary Statement (Form 3520-A, page 5). A U.S. person who is the beneficiary of a foreign nongrantor trust should receive a Foreign Nongrantor Trust Beneficiary Statement, which will include information about the taxability of the distributions the beneficiary received.

Read more at: Tax Times blog

The Internal Revenue Service today announced in IR-2020-194 that it will temporarily allow the use of digital signatures on certain forms that cannot be filed electronically.

The change will help to reduce in-person contact and lessen the risk to taxpayers and tax professionals during the COVID-19 pandemic, allowing both groups to work remotely to timely file forms.

“We take the health and safety of the nation’s taxpayers, the tax professional community and our employees very seriously,” said IRS Commissioner Chuck Rettig. 

“Expanding The Use Of Digital Signatures Is An Important Step During COVID-19 To Help Tax Professionals."

"We understand the importance of digital signatures to the tax community, and we will continue to review our processes to determine where long-term actions can help reduce burden for the tax community, while appropriately balancing that with critical security and protection against identity theft and fraud.”

The Form 1040, U.S. Individual Income Tax Return, already uses an electronic signature when it is filed electronically, either by using a taxpayer self-selected PIN, if self-prepared, or a tax-preparer selected PIN, if using a tax professional. More than 90% of Form 1040s are filed electronically. 

The IRS Recommends All Taxpayers Consider E-Filing Forms This Year, Whenever Possible, Because Of COVID-19.

The below list of forms is available at IRS.gov and through tax professional’s software products. These forms cannot be e-filed and generally are printed and mailed. The IRS will not specify which digital signature product tax professionals must use. There are several commercial products available.

The following forms can be submitted with digital signatures if mailed by or on Dec. 31, 2020: 

• Form 3115, Application for Change in Accounting Method;

• Form 8832, Entity Classification Election;

• Form 8802, Application for U.S. Residency Certification; 

• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit; 

• Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;

• Form 1120-C, U.S. Income Tax Return for Cooperative Associations; 

• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

• Form 1120-L, U.S. Life Insurance Company Income Tax Return; 

• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and 

• Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

The IRS will closely monitor this temporary option for e-signatures and determine if additional steps are needed.

Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Read more at: Tax Times blog