Monday, March 20, 2017

Update on 2704 Proposed Regulations and Impact on 2016 Gift Tax Reporting

Following the December 1, 2016 public hearing, the IRS reportedly began working on revisions to and clarifications of the new 2704 proposed regulations.  While the uproar from the estate planning and accounting communities was almost unanimous, the IRS has said the proposed regulations have been widely misinterpreted and are not intended to eliminate minority discounts or require valuation as if a “put” right existed in all cases.  The IRS is said to be working on a family business exception as well. 

On January 20, 2017, President Trump issued a blanket executive order staying any enactment of new federal regulations not yet published to give his administration time to evaluate its policies, etc.  For regulations already published but not yet effective, including the 2704 proposed regulations, enactment was postponed for at least for 60 days.  That stay will expire on March 21, 2017, at which time the new regulations could be finalized and become effective at such time, although the “disregarded restrictions” provision of the new regulations would take effect 30 days later.  However, most commentators do not think the regulations will be finalized so quickly, if at all, given that President Trump and the Republican Congress have both expressed an intention to repeal the estate tax.

Despite the uncertainty, gift tax return preparers should be aware that IRS disclosure rules may require the preparer to consider the proposed regulations.  The gift tax adequate disclosure rules require disclosure if any position reported is contrary to existing or proposed regulations, so the 2704 proposed regulations are arguably implicated.  It is suggested that any gift tax return reporting a transfer of a closely-held business after August 4, 2016 (which is when the proposed regulations were published) include a statement that the 2704 proposed regulations were not taken into account in determining the value reported because, given the effective date provisions of the proposed regulations, there is no requirement that the 2704 proposed regulations be considered.


If you have questions or want to discuss the 2704 proposed regulations, please contact Jeff Gehring in the Lexington, Kentucky office at 859-899-8713.

Monday, March 13, 2017

Do you have to file a gift tax return (Form 709) for 2016?

By: Judy Layne

If you made a gift to one individual in excess of $14,000 during 2016 (or $28,000 if you are married and you and your spouse agreed to "gift split"), then you will likely be required to file a gift tax return.  This does not mean that you will have to pay gift tax, but you are required to report the gift.  Gift tax returns are due when you file your income tax return.

For more information, contact Judy Layne in the Troy, Michigan office at 248-433-7563.

Monday, March 6, 2017


Recent media attention has been given to proposals to repeal the prohibition on political activities by charitable organizations exempt from taxation under IRC 501(c)(3) – commonly referred to as the “Johnson Amendment”.  While press coverage focuses on the prohibition as it affects religious organizations, the restrictions apply to every organization recognized as exempt from federal income tax taxation under 501(c)3, and because they are tax-exempt,  contributions to such entities are eligible for income tax deductions.

IRS guidance provides activities these organizations, their members and leaders can engage in without running afoul of the Johnson Amendment. In general, “voter education” activities, conducted in a non-partisan manner may not constitute prohibited political activities. Allowable “voter education” activities, include non-partisan voter registration drives, candidates forums providing equal opportunities for candidates to participate and without political fundraising. Elected officials may be freely invited to participate in events, so long as they are acknowledged in their official capacity. Officers and members of these organizations are free to offer their personal endorsements provided they do so in his/her individual capacity, even if the charitable position is identified.  Organizations who engage in business activities, such as renting space, may do so, again so long as it is done as a non-partisan regular business activity, 

Finally, charitable organizations may take positions on public policy issues, including issues that divide candidates in an election for political office. Again, so long as the advocacy is on behalf of the entity’s position and not on behalf of or against a particular candidate, (“Call or write Senator H to tell him or her to vote for a particular bill”), the entity may engage in such activity.

For additional information, please call Elizabeth Brickfield in the Las Vegas, Nevada office at 702-550-4464.

Monday, February 27, 2017

The New Partnership Audit Rules Are Coming, Have You Checked Your Operating Agreement?

By Andrew MacLeod

At the end of 2015, the Bipartisan Budget Act of 2015, as amended (the “BBA”), was enacted into law, and will be effective for tax years beginning after 2017. Under the BBA, the rules relating to the audit of partnership tax returns have been completely revamped and under these new rules, a tax partnership, itself, may be liable for tax, penalties and interest in connection with the audit of a partnership/LLC.

The BBA is complicated and subject to numerous qualifications and exceptions, including for certain eligible entities, an ability to opt-out of the new partnership audit rules. In addition, the BBA eliminates, the old “tax matters partner”, and creates the new role of “partnership representative” for partnership/LLC dealings with the IRS, and grants the new “partnership representative” broad authority in dealings with the IRS, while at the same time eliminating some of the historical statutory protections accorded to partners of a partnership in connection with a partnership/LLC audit.

In light of the BBA and its effective date for tax years commencing after 2017, it may be time to dust off your Partnership/Operating Agreement to re-visit your tax provisions and to consider whether an update in light of the BBA is appropriate, including as to the allocation of any taxes imposed on the partnership/LLC, whether a specific partner tax indemnity is warranted, whether the Partnership/Operating Agreement should provide for affirmative information rights and limits on the partnership representative’s broad statutory authority. Unfortunately, one size does not fit all and whether or not changes to a Partnership/Operating Agreement are appropriate will depend upon each company’s individual situation. As always, we are here to help.

If you have any questions, please contact Andrew MacLeod in our Detroit, Mich. office at 313-223-3187.

Monday, February 20, 2017

New Rules Affecting Passports Will Help IRS Collect Tax Debts

By:  Thomas D. Hammerschmidt, Jr.

The Internal Revenue Service has a powerful new tool to help collect tax debts from individuals applying for or using passports for international travel.  The new provisions allow the IRS to coordinate with the U.S. State Department to deny a passport application or revoke or limit the use of a passport held by a “seriously delinquent taxpayer” - - defined as a person owing more than $50,000 of unpaid taxes, interest and penalties.  Taxpayers in payment arrangements with the IRS or those pursuing timely appeals of levies in due process hearings are excluded from the definition of “seriously delinquent.”

The new law, contained in Internal Revenue Code Section 7345, was passed as part of the Fixing America’s Surface Transportation Act in 2015, but will come into operation in March 2017.  Unfortunately, the IRS has yet to issue regulations or other guidance clarifying the new law and procedures.  Individuals with large unresolved tax liabilities will want to take steps to contact and work with the IRS on their tax debts if international travel is a necessity.


For more information, contact Tom Hammerschmidt (734.623.1602) or Suzanne Sukkar (734.623.1694) in the Firm’s Ann Arbor, Michigan office.       

Thursday, February 16, 2017

Michigan’s Legislature Passes Significant Laws During the Last Days of 2016

In late 2016, Michigan lawmakers passed a good deal of new legislation.   One of the laws, the Qualified Dispositions in Trusts Act, enables an individual (the “settlor”) to create a trust that, in certain circumstances, can protect the settlor’s assets from the settlor’s creditors.  These trusts, often referred to as Domestic Asset Protection Trusts (“DAPTs”), must be irrevocable when created; however, the Settlor may be a beneficiary of the Trust.  Any assets that the settlor transfers to the trust, should be protected from the settlor’s creditors beginning two years after the date on which the settlor transfers the assets to the trust.  In addition, the assets should be transferred to the trust before a claim against the settlor arises.  Michigan DAPTs must have a Michigan based Trustee, who is not the settlor.  Sixteen other states have similar asset protection trust statutes, including Nevada and Tennessee.  The new law becomes effective February 5, 2017.  Any individual who is concerned about future creditor issues should consider a DAPT.
In late December, Michigan lawmakers also abolished dower, a law that gave all married women an interest in her husband’s real property, without regard to when the real estate was acquired.  The law becomes effective April 6, 2017.  Once the law becomes effective, it will no longer be necessary for a woman to sign a deed when her husband transfers his real estate unless she is also on the title. 
Please feel free to contact Judy Fertel Layne at the Troy Office at 248-433-7563.

Monday, February 13, 2017

Follow up on possible Estate Tax Repeal: Important Basis Planning Technique in Estate Planning

By: Les Raatz

In last week’s Tax Tip our Henry Grix succinctly described the current lay of the land regarding estate tax repeal.  This Tax Tip focuses on one narrow but very important aspect in anticipating such action, or possible delayed or lack of action - that of basis step-up of assets owned by a decedent.  The most recently passed House bill (re-introduced as the Death Tax Repeal Act of 2017) would completely repeal the estate tax.  It would also cause the basis of assets owned or deemed owned by the decedent to be stepped up to fair market value (step-up) as is permitted under current law, instead of retaining the old basis (carry-over basis).  President Trump’s pre-election proposal had permitted step-up in basis on up to $10 million of a decedent’s assets, but above that amount there would be carry-over basis, or, perhaps, capital gain on death.

So hedging of bets is the advice of the day.  Potentially millions of dollars may be at stake for children of wealthy parents.

Many parents desire to make irrevocable gifts to descendants, and many are doing so anticipating that the assets gifted will appreciate in value.  One motivation is to avoid an increased 40% estate tax on the subsequent appreciation if repeal does not occur or if passed is subsequently reinstated.  However, the cost of gifting assets during lifetime is that the basis in assets is not stepped-up, so the children’s sale of the assets will generate income tax on appreciation when the assets are subsequently sold that would not occur of the assets were retained by the parent until death.  So the hard choice may be between avoiding estate tax or avoiding increased capital gain tax, but perhaps not avoiding both. 

Is there a way, at the time of the gift, to ride both horses and later chose the best saddle that avoids both taxes once the rules become known?  Likely, yes.  If a lifetime gift is made, it could be in a trust for the benefit of descendants, and the trust terms are drafted to avoid inclusion of the estate of the parent.  But added to the trust agreement is the flexibility to cause trust assets to be deemed included in the estate of the parent at the parent’s death if doing so will not generate an estate tax due to repeal AND basis step-up results. 


For more information, please contact Les Raatz in the Phoenix office at 602-285-5022.