Tax Season Is in Full Swing: Beware of the W-2 Spear Phishing Scam

Phishing ScamBy Patrick H. Haggerty

Editor’s Note: This blog post is a joint submission with BakerHostetler’s Data Privacy Monitor blog.

Last year we saw an unprecedented number of companies of all sizes fall victim to a W-2 spear phishing scam. The scam usually began with a “spoofing” email that appeared to have been sent by a company’s CEO or CFO to one or more employees in the human resources or payroll department. The email typically requested that all of the company’s employees’ W-2s be sent in PDF format via return message or uploaded to a file sharing site. Unbeknownst to the human resources or payroll department employees, the email did not come from the CEO or CFO but a criminal who had conducted some research to, at the very least, identify the names and email addresses of the CEO or CFO as well as the targeted human resources or payroll department employees. Here is an example:




Subject:             Treat as Urgent

Date:                 March 7, 2016 10:55 AM


Hi Tony,

I need copies of all employees’ W-2 wage and tax statements for 2015 to complete a business transaction. I need them in PDF format. You can send them as an attachment.


Jim Smith


The email appears to be a completely legitimate request from a legitimate email address, but in reality the email is from somewhere entirely different and has the “REPLY TO” field (that is typically hidden from the end user) set to an email address controlled by the criminal; for example, The email headers would show this. Other variations on the content of the W-2 requests can be found in the IRS’s alert on the topic issued March 1, 2016.

Criminals were successful in filing fraudulent tax returns within days (and perhaps hours) of obtaining the W-2s. The time and effort it takes to steal this valuable information – a few simple, targeted emails to unsuspecting employees – is significantly less than the time and effort it takes to infiltrate a network. Given this, it is highly likely that this scam will continue during the 2016 tax season.

Now is a good time to remind employees, especially those who handle W-2s and other tax forms, to be aware of the threat. Employees should be advised that email requests for any type of sensitive data should be confirmed as legitimate through direct contact with the apparent sender via a phone call. Employees should be further advised that, rather than responding directly to the email, they should send a new email where they enter the recipient. Employees should also be reminded of any policies and procedures regarding safeguarding personal information.

You can review a compilation of IRS alerts as well as further information on how to avoid tax fraud in general on the IRS’s website.

2017 BakerHostetler Data Security Incident Response Report

For a more in-depth look at other data breach trends, be on the lookout for the 2017 BakerHostetler Data Security Incident Response Report to be published in the near future. To be one of the first to receive a copy, sign up here.

Same-Sex Spouses Authorized to Recalculate Transfer Tax Treatment of Prior Gifts and Bequests

IRS Building in WashingtonThe IRS recently issued Notice 2017-15 to provide same-sex spouses relief to recalculate the federal estate, gift and generation-skipping transfer (GST) tax treatment of gifts and bequests made before the Defense of Marriage Act (DOMA) was deemed unconstitutional.

DOMA defined “marriage” and “spouse” to the exclusion of same-sex couples for purposes of federal law, including federal transfer tax laws. As a result, taxpayers in same-sex marriages were not treated as married for purposes of federal estate, gift and GST taxes, and they could not claim a marital deduction for gifts or bequests made to each other. Instead, same-sex spouses were required to allocate limited exclusion amounts to (or pay gift or estate taxes on) gifts and bequests to each other.

In 2013, this changed. The U.S. Supreme Court held in the Windsor case that DOMA was unconstitutional, and the IRS issued Rev. Ruling 2013-17 to provide that for federal tax purposes, “marriage” and “spouse” would include same-sex couples lawfully married under state law. Unfortunately, Rev. Ruling 2013-17 applied only prospectively, leaving same-sex spouses who made prior gifts or bequests to each other without clear relief. Continue Reading

The Impending Death of the Stretch IRA?

Pension NestIt can, at times, seem like a fool’s errand to focus too closely on specific provisions contained in proposed legislation. As any casual observer of Congress can attest, committee proposals frequently die unenacted or undergo significant change before they are considered by the full House or Senate. Joint conference committees provide yet further opportunities for additional changes, as competing bills are melded together for consideration by both houses.

Nevertheless, for individuals with sizable IRA or qualified plan account balances who are engaging in wealth and estate planning activities, it would be prudent to be aware of the existence of the Retirement Improvement and Savings Enhancements (RISE) Act of 2016, which was introduced before the Senate Finance Committee this fall. Along with a number of changes intended to increase retirement savings opportunities for younger individuals and for working and middle-class families, the RISE Act would eliminate a common estate planning technique: the “Stretch IRA.”

IRAs and qualified retirement plan accounts are subject to minimum required distributions, which are generally required to commence when an account holder or participant attains age 70-1/2. Annual distributions thereafter must be made during the lifetime of the account holder, based on the life expectancy of the accountholder or, if applicable, upon the joint life expectancy of the accountholder and the designated beneficiary. Following the death of the accountholder, remaining amounts may be rolled over into an “Inherited IRA” held for the benefit of the designated beneficiary. Amounts held in an Inherited IRA are also subject to minimum required distributions. However, minimum required distributions from the Inherited IRA are calculated based on the beneficiary’s life expectancy. Thus, by naming a child (or other younger individual) as the beneficiary of his or her IRA or retirement plan account, an individual may be able to “stretch” the period during which amounts may be kept in the tax-deferred retirement account and delay the taxation upon distribution to his or her heirs. Continue Reading

IRS Revenue Procedure Confirms IRS Will Respect QTIP Elections When Portability Elections Also Made

tax iStock_000006743485_LargeThe IRS resolved an important issue when it issued Revenue Procedure 2016-49, effective September 27, 2016, clarifying that the IRS would not disregard qualified terminable interest property (QTIP) elections for estates that also made a portability election.

Uncertainty over when QTIP elections would be respected arose after the IRS stated in a 2001 Revenue Procedure that unnecessary QTIP elections could be disregarded as null for federal gift, estate and GST tax purposes. Under the 2001 Revenue Procedure, a QTIP election could be deemed unnecessary and ignored if the election was not needed to reduce the estate tax value to zero. For example, where a decedent’s estate was under the applicable exclusion amount, the IRS could disregard a QTIP election made by the estate’s executor or personal representative solely for the purpose of preserving the deceased spouse’s unused exclusion amount under the portability rules.

With Revenue Procedure 2016-49, the IRS put doubts to rest by clarifying that it will respect QTIP elections made by estates whose executors or personal representatives properly made a portability election, regardless of the estate tax value before the QTIP election was made. Revenue Procedure 2016-49 also confirms much of the 2001 Revenue Procedure by detailing the requirements for when a QTIP election will be disregarded, such as when an estate has not made a portability election and the estate tax would be zero without the QTIP election.

It appears that portability is here to stay, and Revenue Procedure 2016-49 should provide relief and clarity to those who plan to utilize both QTIP and portability elections. For more information on how Revenue Procedure 2016-49 could affect your or your family’s estate planning matters, please contact Lisa Roberts-Mamone (


IRS Regulations Clarify Definition of Spouse for Federal Tax Purposes in Light of Obergefell v. Hodges

Tax Filing StatusThe IRS has issued final regulations clarifying the definitions of “spouse,” “husband,” “wife,” and “husband and wife” for federal tax purposes. The final regulations now define “spouse,” “husband” and “wife” as any individual lawfully married to another individual, and “husband and wife” as any two individuals lawfully married to each other, regardless of the individuals’ sex.

The clarification was needed after the Supreme Court ruled in Obergefell v. Hodges in 2015 that state bans on same-sex marriage violated the Equal Protection guarantees of the Fourteenth Amendment. Obergefell struck down same-sex marriage bans as unconstitutional in four states (Ohio, Michigan, Kentucky and Tennessee), resolving a circuit split on the issue. (As previously discussed here, the Obergefell decision was anticipated after the Court ruled in U.S. v. Windsor that the authority to define marriage lay with the states, but declined to rule on the constitutionality of same-sex marriage. For more on the Windsor case, click here.)

Following Obergefell, the IRS issued proposed regulations redefining “spouse” for federal tax purposes. The proposed regulations also provided that a recognized marriage for federal tax purposes was a marriage recognized by any U.S. state, possession or territory. However, commentators pointed out that such a definition was too broad. For example, the proposed regulations’ definition of marriage could have caused taxpayers living in common-law marriages not recognized by their state to nonetheless be treated as married if any other U.S. state or territory would recognize their marriage. As a result, the final regulations provide that a marriage is recognized for federal tax purposes if the marriage is recognized in the U.S. state, possession or territory where the marriage is entered into – also known as the “state of celebration” rule. The final regulations do not recognize as a marriage for federal tax purposes alternative legal relationships such as registered domestic partnerships or civil unions. The final regulations also contain rules on recognition of foreign marriages. The full text of the final regulations can be found here.

These regulations should offer clarity to same-sex partners for estate and tax planning matters. For more information on how these regulations affect you or your family, please contact Amanda Tate ( or Chad Makuch (

Beyer Beware: An Examination of a Family Limited Partnership Gone Wrong

tax iStock_000006743485_LargeThe opinion issued on Sept. 29, 2016, in the case of Estate of Edward G. Beyer v. Commissioner of Internal Revenue was the culmination of an estate planning exercise that had an unfortunate ending for everyone involved (other than the IRS). The case involved a number of failed estate planning techniques.


The situation began when Edward Beyer, a Chicago resident and longtime executive at Abbott Laboratories, and Mr. Beyer’s nephew, Craig Plassmeyer, were introduced to attorneys at the firm of Madonia & Associates (Madonia) for the purpose of discussing and considering certain wealth transfer techniques. On the advice of Madonia, Mr. Beyer decided to form a limited partnership, the general partnership interest of which would be owned by revocable trust established by Mr. Beyer (GP revocable trust), with the limited partnership interest owned by a separate revocable trust also established by Mr. Beyer (LP revocable trust). The plan called for Mr. Beyer to form an irrevocable trust sometime after the formation of the limited partnership, which would purchase the limited partnership interest from the LP revocable trust.

Mr. Beyer named himself, Craig Plassmeyer and another of Beyer’s nephews, Bruce Plassmeyer, as the co-trustees of the LP revocable trust. The provisions of the LP revocable trust instrument obligated the LP revocable trust to pay any transfer taxes imposed by reason of Mr. Beyer’s death. Mr. Beyer also named his nephews Craig and Bruce Plassmeyer as the co-trustees of the GP revocable trust. Continue Reading

Possible Congressional Action May Undercut Proposed 2704 Regulations

Justice_453626233Republicans in the House of Representatives and the Senate have introduced bills to derail the Proposed Regulations under Section 2704 of the Internal Revenue Code (“Proposed Regulations”), including bills to (1) nullify the Proposed Regulations and prevent future regulations, and (2) cut federal funding associated with the enforcement of such Proposed Regulations.

The first bill, introduced by Jim Sensenbrenner, R-Wis., in the House of Representatives, would invalidate the Proposed Regulations. It is a short bill and essentially states that the Proposed Regulations and any substantially similar regulations promulgated shall have no force or effect. The second bill, sponsored by Warren Davidson, R-Ohio, in the House of Representatives, is similar to the first bill but adds another element. It too states that the Proposed Regulations shall have no force or effect. It then seeks to block federal funding for the rules: “No Federal funds may be used to finalize, implement, administer, or enforce such proposed regulations or any substantially similar regulations.”

Republicans in the Senate are also actively pursuing action against the Proposed Regulations. Marco Rubio, R-Fla., introduced companion legislation to Rep. Davidson’s bill, stating that the Proposed Regulations shall have no force or effect, with identical language blocking federal funding. In addition, numerous Republican Senators co-signed a letter sent to the Honorable Jacob Lew, Secretary of the Treasury, asking the Treasury to withdraw the Proposed Regulations.

It remains to be seen whether the congressional actions will gain traction. A public hearing on the Proposed Regulations is scheduled for Dec. 1.

Proposed Regulations Under IRC Section 2704 Seek to Eliminate Discounts on Transfers of Family Business Interests

Justice_453626233On Aug. 2, 2016, the Treasury Department and the Internal Revenue Service released proposed regulations under Internal Revenue Code (Code) section 2704 (the “Proposed Regulations”). The Proposed Regulations, if finalized in their proposed form, would eliminate most valuation discounts on redemptions and transfers of family business interests among family members when a single family “controls” the business both before and after the transfer.

Set forth below are summaries of the following:

  1. What Code section 2704 covers under current law.
  2. Some examples where the proposed, much-expanded coverage of Code section 2704 under the Proposed Regulations may be unenforceable.
  3. The process for comment, hearing and review before the Proposed Regulations are finalized and become effective.
  4. What family business owners should consider (from an estate planning perspective), given the scope of restrictions in the Proposed Regulations.

1. Scope of Code Section 2704 Under Current Law

Congress enacted “Chapter 14” (sections 2701 through 2704) of the Code back in 1990, to curb perceived abuses in the discounted valuation of property transfers between family members. In general terms, Code section 2704 addressed “certain lapsing rights and restrictions” affecting control of family businesses and/or rights to liquidate interests in family businesses. Continue Reading

The Donor Advised Fund Alternative to a Family Foundation

Money GiftThere are several gifting vehicles that provide donors and their families with the opportunity to participate in their philanthropy on an ongoing basis. Frequently, families will consider creating and funding a private family foundation or, in special circumstances, an organization that supports one or more public charities. A cost-efficient option for many families is to coordinate their charitable giving through a donor advised fund (DAF) sponsored by a reputable public charity.

To create such a fund, a donor simply enters into a gift agreement with a public charity such as a community foundation, or a national or local religious foundation like the Presbyterian Church Foundation or a United Jewish Appeal Federation. Such a gift agreement typically provides for:

  • Establishing a fund to accept irrevocable, tax deductible contributions of assets identified by name with the donor or donor family.
  • Naming a fund advisor and successors to make recommendations regarding distributions from the DAF for charitable purposes.

In some instances, a DAF agreement may also permit fund advisors to recommend investments from a menu of preapproved investment options. Continue Reading

IRS Simplifies Rules for Correcting Failed Rollover

Money_Tax_516634417On August 24, 2016 the IRS published Revenue Procedure 2016-47, which simplifies the steps for correcting a missed rollover from a qualified plan or IRA to another qualified plan or IRA. Amounts distributed from a qualified plan or IRA will be taxable unless they are rolled over into another plan or IRA within 60-days of the original distribution.

Previously, the IRS had established a procedure whereby taxpayers who missed the 60-day period could request a private letter ruling granting a hardship waiver of the 60-day period.   This procedure necessitated a filing with the IRS and the payment of a user fee by the individual.

Revenue Procedure 2016-47 simplifies this process by allowing a qualifying taxpayer to self- correct the delayed rollover without having to seek advanced approval from the IRS for the most common causes for such inadvertent delays. The taxpayer must certify that he is eligible for the relief under Rev. Proc. 2016-47 and provide that certification to the trustee or custodian of the plan or IRA accepting the late rollover.  The recipient trustee or custodian will generally be able to rely on this certification as evidence of a waiver of the 60-day requirement.  A sample copy of this certification is included with the Revenue Procedure. Continue Reading