Archives: Tax

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

The 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 … Continue Reading

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

The 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 … Continue Reading

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

The 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’ … Continue Reading

Donors and Charities Benefit Under New Tax Legislation

While most provisions of the Internal Revenue Code (“Code”) do not automatically expire, there are dozens that do. Included among the expiring provisions have been several intended to enhance charitable giving. Each has been hostage to the late-year legislative ritual of frequent short-term extensions, which has created significant uncertainty for donors, charities, and their advisors. … Continue Reading

Retirement Planning Strategies under the Scrutiny of the Federal Fisc

President Obama’s proposed budget for 2016 shows that some retirement planning strategies have drawn the attention of the Federal government and may be subject to future legislative limitations. The President’s proposed budget suggests that Roth IRA conversions be limited to only pre-tax contributions. This would effectively eliminate the “backdoor” Roth IRA conversions by which taxpayers … Continue Reading

IRS Plans to Further Restrict Family Business Valuation Discounts

IRS regulations anticipated for release as early as this September may further restrict valuation discounts. The exact scope of the regulations is unknown, but the regulations will likely make it more difficult for taxpayers to discount the value of family business interests. Valuation Discounts Generally Valuation discounts in family business interests are often utilized in … Continue Reading

Bitcoin and the Like: Tax Considerations

Virtual currency is a new, untested, and unregulated asset. The Internal Revenue Service (IRS) defines “virtual currency” as a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. “Convertible virtual currency” is virtual currency that has an equivalent value in real currency, or acts … Continue Reading

Obama Proposes “Middle Class” Tax Increases at Death

The prospects of significant tax legislation this year are low. Nevertheless, when the President proposes “tax reform” it makes headlines. The Obama administration’s latest tax proposals for fiscal year 2016 would increase dramatically both the rates of transfer/income taxation at death and the number of people subject to those higher taxes in the event of … Continue Reading

Still Waiting For Guidance on Material Participation

In March 2014, I commented on the US Tax Court decision in the Frank Aragona Trust case. In that case, the tax court disagreed with the Internal Revenue Service’s arguments that a trust was incapable of providing “personal services” to meet the material participation test under IRC § 469 (c)(7). In November 2013, when the … Continue Reading

Tax Court Rules Corporate Merger of Family-Owned Businesses Results in Substantial Taxable Gift

In September, the Tax Court issued its opinion in Cavallaro v. Commissioner, T.C. Memo 2014-189, holding that a merger of two family-owned businesses resulted in a $29.6 million gift from Mr. and Mrs. Cavallaro to their three sons. Background Mr. Cavallaro started a tool manufacturing company called Knight Tool Co. (“Knight”). Knight was co-owned by … Continue Reading

IRS Attempts to Simplify the Application Process for Certain 501(c)(3) Organizations, but is “EZ” Better?

On July 1, 2014, the Internal Revenue Service (“IRS”) released Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (“Code”). Form 1023-EZ is an abbreviated version of the twelve page Form 1023 (which can be supplemented by as many as seven schedules) and is intended to streamline the … Continue Reading

Keep Your Collection Away from the Collectors: Tax Planning for Fine Art

Appreciation of fine art can create challenging tax issues, but with proper planning collectors can minimize the estate, gift, and income tax consequences of their collections. For taxpayers hoping to keep their works in the family, a recent 5th Circuit Court of Appeals ruling provides some promising precedent for valuation issues. In Estate of Elkins … Continue Reading

Income Tax Reporting for Decanting

Decanting refers to the distribution of trust property of one trust (the “first trust”) to another trust (the “second trust”).  Over the past several years, the number of states specifically authorizing decanting by statute has grown rapidly.  As of March 2014, at least twenty-two states have passed or proposed a state decanting statute. Notwithstanding this … Continue Reading

IRS Issues Warnings about Email and Telephone Tax Scams

As the 2014 tax filing season progresses the Internal Revenue Service has issued warnings to taxpayers about convincing fraudulent email messages and telephone calls seeking payments or personal information that will enable the scammer to directly or indirectly steal from the victim.  All taxpayers should keep in mind that the Internal Revenue Service never initiates … Continue Reading

The Waiting Game: What to Do (and Not Do) While an Exemption Application is Pending

So, you have thoughtfully and thoroughly prepared the Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) (“Form 1023” or “application”) on behalf of a charity, and filed it with the IRS along with a completed checklist and the correct user fee.  The charity is now anxious to fundraise and accept donations, commence its … Continue Reading


Because trusts are subject to the 3.8% Net Investment Income Tax at a very low income level, $12,150 for 2014, trustees of trusts owning interests in operating entities have been considering ways to meet the material participation requirements to avoid this tax.  As discussed in a prior post, differing points of view have arisen regarding … Continue Reading

Will Camp Tax Plan Impact Charitable Giving and Tax-exempt Organizations?

In late February 2014, House Ways and Means Committee Chairman Dave Camp (R-MI) released a nearly 1,000 page discussion draft addressing tax reform.  Chairman Camp’s proposal includes changes to numerous sections of the Internal Revenue Code, including changes with respect to the taxation of individuals, capital gains and businesses.  The discussion draft also includes changes … Continue Reading

Transfers to Non-Citizen Spouses: Planning Considerations

Estate planning professionals commonly encounter married couples with mixed nationalities.  That is, one spouse is an American citizen and the other is not.  The U.S. estate and gift tax rules are generally the same for U.S. citizens and resident aliens.  However, the estate tax marital deduction differs significantly as applied to non-U.S.-citizen surviving spouses. The … Continue Reading

International Grant-Making: Best Practices for U.S. Public Charities

U.S. public charities are blessed, but also challenged, by a relative lack of regulation governing their grants to foreign persons and foreign entities. U.S. public charities are blessed by this lack of regulation because the rules applicable to them when making grants are fairly simple, flexible and easy to understand, particularly when compared to the … Continue Reading

A Disconcerting Proposal from the Senate: Proposed Repeal of Section 1031

Last November, Senate Finance Committee Chairman, Max Baucus, released the third package in a series of “Staff Discussion Drafts” proposing various changes to reform the Internal Revenue Code.  Of course, it is likely that any major changes to the Code will be shelved until the inevitable discussion begins regarding the difficult process to address federal … Continue Reading

ACTEC Wealth Advisor App Offers Powerful Planning Tool for Wealth Management Professionals

The American College of Trust and Estate Counsel (ACTEC) is a national association of leading trust and estate attorneys.  ACTEC contributes to the field of trusts and estates law through scholarship, teaching, and bar leadership activities.  BakerHostetler’s private wealth planning attorneys have a long and active history with ACTEC.  Recently, BakerHostetler’s participation helped with the … Continue Reading