Tax Bill Would Update Wording of Tax Code’s Marriage Provisions

The Equal Dignity for Married Taxpayers Act of 2019 would replace gender-specific references to marriage in the tax code with gender-neutral references.  S. 515; Equal Dignity for Married Taxpayers Act of 2019.  The purpose of the changes are to clarify that all provisions shall apply to legally married same-sex couples in the same manner as other married couples, and for other purposes.

Wyden Bill Would Update Wording of Tax Code’s Marriage Provisions. TaxNotes. 2.15.19.

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Is it too late to opt out of automatic allocation of GST exemption? Probably not.

In PLR 201852008, the IRS granted a 16-year extension of time for the taxpayer to opt out of the automatic allocation of GST exemption.  On a date prior to December 31, 2000 (“Year 1”), the Donor created an irrevocable trust for the benefit of his children and his children’s issue.  Prior to December 31, 2000, the Donor and the Donor’s spouse made gifts to the trust, but did not allocate their GST exemption to the Trust.  Subsequent to December 31, 2000, when the automatic allocation rules took effect, the Donor made gifts to the Trust in Years 2 through 17.

Although the Donor employed tax professionals to advise regarding Form 709 and to file Form 709, the tax professionals failed to advise the Donor of the rules under Code § 2632(c) regarding the automatic allocation of GST exemption and the ability to opt out.  Therefore, although the Donor did not intend for GST exemption to be allocated to the Year 2 through 17 transfers, the Donor failed to elect out of the automatic allocation of GST exemption for the Year 2 through 17 transfers to the Trust.

The IRS granted the 16-year extension to opt out of the automatic allocation, finding that the Donor had acted reasonably and in good faith, and that relief would not prejudice the interests of the IRS.

Keebler, Bob, LISI 60-Second Planner: PLR 201852008 — Election Out of Automatic GST Allocation. Leimberg Information Services.

IRS Issues Form 8988 and Form 8989 to Elect or Revoke Partnership Audit “Push Out” Election

Under the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015, adjustments to partnership-related items are determined at the partnership level under Code § 6225.  However, under Code § 6226, the partnership may elect to “push out” the imputed underpayment so that the tax attributable to the adjustments is assessed and collected from the partnership’s partners.  The election to “push out” the imputed underpayment under Code § 6226 must be made within 45 days of date on which the final partnership adjustment is mailed by the IRS.  The election, once made, may only be revoked with the consent of the IRS.

Last week, the IRS published Form 8988, Election for alternative Payment of the Imputed Underpayment and Form 8989, Request to Revoke the Election for Alternative to Payment of the Imputed Underpayment, to assist taxpayers in implementing Code § 6226.

IRS issues forms to make, and to revoke, partnership audit “push out” election.  CheckPoint Daily Updates 2/11/2019. Federal Tax Update.

Disclaimers Result in IRA Passing to Decedent’s Estate of which Surviving Spouse is Sole Beneficiary; IRS Permits Spousal Rollover instead of Requiring Inherited IRA Treatment

The Decedent died at an age greater than 70.5 owning an IRA.  The 100% beneficiary of the IRA was a Trust.  The Decedent did not name a contingent beneficiary.  The Trust executed a qualified disclaimer of the IRA.  Each of the Decedent’s descendants also executed qualified disclaimers of the IRA.  As a result of these qualified disclaimers, the IRA passed to the Decedent’s estate to be governed by the Decedent’s Will under which the Decedent’s spouse was the sole beneficiary.

In PLR 201901005, the IRS ruled that for purposes of Code § 408(d)(3), the Decedent’s spouse will be treated as having acquired the IRA DIRECTLY FROM THE DECEDENT, and not from the Decedent’s estate.  Further, the Decedent’s spouse is eligible to roll over the Decedent’s IRA into such spouse’s own IRA.

Keep this ruling in mind for post-death planning of retirement benefits when the surviving spouse is not named as the IRA beneficiary.

Bernie Sanders Proposes Extreme Estate Tax on Billionaires

According to a statement, Sanders’s proposed plan would set a 45% tax on the value of estates between $3.5 million and $10 million, with the rate increasing so that amounts greater than $1 billion would be taxed at a rate of 77%.  Meanwhile, some Senate Republicans seek to repeal the estate tax entirely.

The current approximately $11 million estate and gift tax exemption per person has risen from $650,000 per person 20 years ago.\

Davis, Laura and Arit John. Sanders Proposes Estate Tax of Up to 77 Percent for Billionaires. Bloomberg Law. Feb. 1, 2019

Convincing a Surviving Spouse to File an Estate Tax Return

The doubled estate and gift tax exemption, albeit temporary, resulting from the Tax Cuts and Jobs Act, has made it more difficult to convince surviving spouses with modest estates to file a Form 706 estate tax return to preserve the deceased spouse’s unused exemption (“DSUE”) amount.  Failure to file a Form 706 causes all of that remaining exemption to be forfeited.

If, as a practitioner, you are unable to convince a surviving spouse to file a Form 706, you’ll want to document your communications with the surviving spouse on this topic.  And, you’re not alone.  According to IRS data, only 681 NONtaxable returns were filed in 2017 claiming  DSUE amounts.

Curry, Jonathan. Getting Surviving Spouse to File Estate Return Now Even Harder. Taxnotes.com. Feb. 1, 2019.

Tennessee Lawmaker Introduces Remote Seller Bill

S.B. 82, introduced by Sen. Rosalind Kurita, would require remote sellers to collect the state’s 7 percent sales tax if their annual sales into the state exceed $100,000 in gross revenue or total 200 or more separate transactions, which would be effective starting January 1, 2020.

Tennessee counties and cities currently have the option of imposing a local sales tax of up to 2.75%, but retailers without a location in Tennessee have the option of paying a flat rate of 2.25%.  The option to pay the flat rate is set to expire on July 1, 2019, but Sen. Kurita’s proposed bill would make the flat rate option permanent for remote retailers.

Muse, Andrea. Tennessee Lawmaker Introduces Remote-Seller Bill. Taxnotes.com. Jan. 30, 2019.

Davidson County Probate Court has Subject Matter Jurisdiction over Estate when Decedent moved from PA to Davidson County, TN, Assisted Living Three (3) Weeks prior to Death

Louis Dell’ Aquila (the “Decedent”) died at the age of 86 on October 3, 2017, in a Davidson County, Tennessee, assisted living center after having resided in Pennsylvania for most of his life.  On October 5, 2017, the Decedent’s son David Dell’ Aquila (the “Petitioner”) filed a Petition for Letters Testamentary in the Davidson County, Tennessee, Probate Court.  The Decedent’s daughter opened an estate in Pennsylvania.  The Pennsylvania Court ruled that it would take no further action in the Decedent’s probate matter until the Davidson County Probate Court determined the Decedent’s domicile at the time of his death.  After a four-day evidentiary hearing, the Davidson County Probate Court entered an order providing that the Decedent established his domicile in Tennessee when he relocated to Tennessee in September 2017, approximately three (3) weeks prior to his death.  The Decedent’s daughter appealed.

Tenn. Code Ann. § 32-2-101 provides that “wills shall be proved and recorded and letters testamentary granted in the probate court of the county where the testator had the testator’s usual residence at the time of the testator’s death […]”

Because the Decedent attempted to bring his wife with him to Tennessee, attempted to sell all of his personal property prior to moving to Tennessee, and indicated to many witnesses that he never intended to return to Pennsylvania, the Court of Appeals held that the Decedent intended to abandon his domicile in Pennsylvania and establish a domicile in Tennessee. Therefore, the Decedent was domiciled in Tennessee on the date of his death and the Davidson County, Tennessee Probate Court had subject matter jurisdiction over the Decedent’s estate.

In Re Estate of Louis Dell’ Aquila. No. M2018-01090-COA-R3-CV. (Tenn. Ct. App. Jan. 25, 2019).

Triple Net Leases Excluded from 199A Rental Real Estate Safe Harbor

Notice 2019-07, released on Friday, contains a proposed revenue procedure that provides for a safe harbor under which a rental real estate enterprise will be treated as a trade or business solely for purposes of section 199A.

For purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held for the production of rents and may consist of an interest in multiple properties. A rental real estate enterprise will be treated as a trade or business if the following requirements are met:

(1) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;

(2) For taxable years beginning January 1, 2023, 250 or more hours of rental services are performed per year with respect to the rental enterprise.

(3) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services.

The term “rental services” includes (i) advertising to rent or lease the real estate; (ii) negotiating and executing leases; (iii) verifying information contained in prospective tenant applications; (iv) collection of rent; (v) daily operation, maintenance, and repair of the property; (vi) management of the real estate; (vii) purchase of materials; and (viii) supervision of employees and independent contractors.  The term “rental services” does not include financial or investment management activities, such as arranging financing; procuring property; studying and reviewing financial statements or reports on operations; planning, managing, or constructing long-term capital improvements; or hours spent traveling to and from the real estate.

The entirety of Notice 2019-07 is available here.

Inherited IRA Exempt from Bankrupty…what about Clark v. Rameker?

Michael Arehart (“Arehart”) was the designated beneficiary on his mother’s IRA.  When his mother died, those funds were transferred to an inherited IRA for Arehart’s benefit.  Shortly after the receipt of the inherited IRA, Arehart filed a voluntary petition for chapter 7 bankruptcy relief.

Arehart claimed the inherited IRA was wholly exempt pursuant to Idaho Code § 11-604A

The Trustee argued that the inherited IRA, based on Clark v. Rameker, 573 U.S. 122 (2014), was not exempt.

Arehart argued that the Idaho statute is not as narrowly written as the statute interpreted in Clark, relying on In re McClelland, 2008 WL 89901 (Bankr. D. Idaho 2008), which held that inherited IRAs are exempt under Idaho Code § 11-604A.  Unlike the statute described in Clark, the Idaho statute does not require a finding that the funds in the account or plan be “retirement funds;” rather, the language that the Idaho legislature used to create the exemption captures more than an individual account owner’s retirement income and includes the beneficiary’s interest in an inherited account as well.

Relying on McClelland, the Court found that Idaho Code § 11-604A is written broadly enough so as to encompass inherited IRAs, exempting them from bankruptcy.

Bloomberg Law. Case: Inherited IRA Exempt from Bankruptcy Under State Law (Bankr. D. Idaho) (IRC § 408), Jan. 15, 2019.

 

In re Arehart, No. 17-01678-TLM (Bankr. D. Idaho Jan. 10, 2019).