Barbara is an attorney concentrating her practice on all aspects of estate planning, estate and trust administration, estate trust and fiduciary litigation, business succession planning, nonprofits, and family foundations. Barbara believes the...Read More by Author
January Tax Tidbits
Tax Tips for January 2017 are listed below.
Rev Rul 2017-02, 2017-3 IRB January 2017 Rates:
- Section 7520 Rate: 2.4%
- Annual Short Term AFR (0‐3 years): 0.96%
- Annual Mid Term AFR (3‐9 years): 1.97%
- Annual Long Term AFR (over 9 years): 2.75%
IRS Regulatory Agenda IRS Notice, 81 Fed. Reg. 81242, 81243, 11/17/2016
The IRS is currently soliciting comments concerning three items of interest related to estate administration:
- Form 8855. Form 8855 is used to make the Code Section 645 election that allows a qualified revocable trust to be treated and taxed (for income tax purposes) as part of the related estate during the election period.
- TD 7941. This regulation relates to the Code Section 6324A election. The purpose of the proposed regulation is to clarify the procedure for making an election to place a lien on Code Section 6166 property (closely held business) as an alternative to a bond or the personal liability of the personal representative.
- Form 4952. Form 4952 is used to figure the deduction carry forward amounts of investment interest expense (interest paid on loans allocable to investment property).
Proposed Code Selection 2704 Regulations Work to Minimize Valuation Discounts
The Proposed Code Section 2704 remains controversial. These proposed regulations concern the treatment of certain lapsing rights and liquidation in determining the value of transferred equity interests in relation to the valuation of interests in corporations and partnerships for estate, gift, and generation-skipping transfer (GST) tax purposes. The IRS is focused on trying to prevent the undervaluation of such transferred interests. Under the proposed regulation, the use of discounts for lack of control and lack of marketability is significantly limited, if not eliminated. Opponents of the proposed regulations state these are a camouflaged means of imposing a significant tax increase without direct congressional authorization.
Earliest Inheritance Property Basis Reporting Deadline was June 30, 2016
The final regulations for consistent basis reporting have been issued. The earliest due date for providing statements to the IRS and to beneficiaries was June 30, 2016. In accordance with such regulations, if an executor or administrator of a decedent’s estate must file an estate tax return, then such fiduciary must file consistent basis statements in accordance with Code Sections 6018(a) and 6035. Specifically, Code Section 6035(a)(3)(A) provides that each statement required to be furnished under Code Section 6035(a)(1) or Code Section 6035(a)(2) must be furnished at such time as the IRS may prescribe, but in no case at a time later than the earlier of: (i) the date which is 30 days after the date on which the return under Code Section 6018 was required to be filed (including extensions, if any); or (ii) the date which is 30 days after the date such return is filed. The basis of any reportable property to which Code Section 1014(a) applies can’t exceed:
(A) in the case of property, the final value of which has been determined for purposes of the estate tax on the estate of the decedent, such value.
(B) in the case of property not described in (A), above, and with respect to which a statement has been furnished under new Code Section 6035(a) (see below) identifying the value of such property, such value.
No Deduction for Trust’s Charitable Contributions Made Under State Court’s Modifications
In Chief Counsel Advice 201651013, the IRS concluded that a trust was not entitled to a Code Section 642(c)(1) charitable deduction nor a Code Section 661 distribution deduction for income tax purposes where the contributions to the charitable organizations were possible only because of modifications to the trust pursuant to a state court order. The governing document allowed for a distribution of trust assets to a charity through a testamentary limited power of appointment; however, under the approved modification the beneficiary was given an inter vivos limited power of appointment exercisable for the benefit of a charity. This change was deemed to fall outside the scope of the original governing document; therefore, the deductions were disallowed. This is another reminder of the significant role income tax planning has on our drafting of trust instruments and the associated modifications or terminations of such trusts.
Code Section 2010
The IRS granted several 120-day extensions for the respective personal representative to make Code Section 2010(c)(5) portability election to take into account DSUE amount where taxpayer acted reasonably and in good faith and granting relief would not prejudice the government’s interests. See PLR 201650004; 201650009; 201651006; 201651007; 201652007; 201652008; 201652009; 201652010; 201652016.