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.

Thursday, February 9, 2017

KNOWN UNKNOWNS about Federal Tax Laws and Regulations

By: Henry Grix

The new administration in Washington, supported by Republican majorities in Congress, has pledged substantial changes to federal tax laws and regulations.  One change may - or may not - be the complete elimination of federal estate and generation-skipping transfer tax.  Until the fate of gift, estate and generation-skipping transfer tax is resolved, individuals and families who are affected by such transfer taxes may need to plan in the alternative:  that is, plan for our current estate tax regime and plan as if the current system were repealed.  Planning for repeal is difficult.  It remains unclear whether our current system will be replaced by some other revenue-raising measure (requiring alternative income tax planning, for example), or, if there is repeal, whether it will “sunset” (as happened with “repeal” for one year only in 2010).  Relatively few Americans are affected by our current estate tax because it applies, at a 40% rate, only to individuals transferring more than $5.49 million and to married couples transferring twice that amount, or $10.98 million.  For owners of closely-held businesses who are exposed gift, estate and generation-skipping transfer tax, there currently is some incentive to proceed with transfers of minority interests in the family business because discounts for lack of marketability and for minority interests should apply when valuing any gift.  Last year, the IRS proposed regulations under Section 2704 of the Internal Revenue Code to eliminate such discounts on intra-family transfers, but the Trump administration’s moratorium on the implementation of new federal regulations means that valuation discounts should remain available at this time. 


For more information, please contact Henry Grix in the Troy, Michigan office at (248) 433-7548.

Monday, February 6, 2017

Michigan’s new exemption for manufacturing personal property -- Claims are due February 21 this year.

By: Bob Rhoades

For purposes of Michigan property taxes, qualified manufacturing personal property (as defined by MCL 211.9m and 211.9n) located on occupied real property is exempt from ad valorem taxation and, rather, is subject to a much lower Essential Services Assessment.  To claim this exemption, a fully completed Form 5278 must be received by the Assessor for the local unit of government where the qualified personal property is located no later than February 20 (February 21, 2017 this year, due to a holiday).  The application form can be accessed at:
If more than 50% of the personal property on a single occupied real property site is use for either manufacturing or direct integrated support activities, then all the personal property on the site is eligible manufacturing personal property.  One exception is that utility property and property used to generate or transmit electricity is not EMPP and it is excluded from the 50% calculation.

Eligible manufacturing personal property qualifies for the exemption based on when it was placed in service.  The exemption for personal property placed in service between 2013 and 2007 phases in, starting last year, and ends in 2023 when the exemption will apply to all eligible manufacturing personal property regardless of when purchased.    
If a taxpayer’s exemption claim is denied by the local assessor, the taxpayer has 35 days to appeal to the Tax Tribunal.  

For further information, contact Bob Rhoades in the Detroit office at (313) 223-3046.  

Michigan’s personal property statements are due February 21 this year.

If a property taxpayer’s personal property at a particular Michigan location does not qualify for the new Eligible Manufacturing Personal Property Exemption (EMPP - - see prior posts on this topic), the standard personal property statement Form 4175 must still be filed.  The annual deadline for that filing under current law is February 20 (February 21, 2017 this year, due to a holiday).  
As described in a previous post, all personal property at one location is either EMPP or none of it is EMPP, depending on the property’s predominant use, or “the more than 50%” test.  For all the property at one location, you will file either a Form 5278 claiming the exemption, or a standard personal property statement, Form 4175. 

Failure to file Form 4175 can result in an estimated assessment and it may limit your appeal rights by requiring you to appeal any estimated assessment to the local board of review as a prerequisite to further appeal. 

For further information, contact Bob Rhoades in the Detroit office at (313) 223-3046.

Thursday, February 2, 2017

Michigan’s 2017 property tax assessment notices are in the mail. Should you appeal?

By: Bob Rhoades

Local assessors are in the process of sending annual notices of real and personal property tax assessments to property owners/taxpayers, who must determine whether the assessments are correct and whether an appeal should be filed.  Here are a few thoughts on that decision and upcoming deadlines.

Annual assessment notices disclose both the “assessed value” and “taxable value” of the property for the present and previous year.  The assessed value, which after equalization is referred to as state equalized value (SEV), should not exceed 50% of market value.  While a substantial increase in assessed value warrants scrutiny, the assessment can be appealed whether or not it was increased.  Recent sales of either the subject property or comparable properties are often persuasive evidence of value.  Changes in the condition or obsolescence are sometimes unknown to the assessor or overlooked and can warrant an assessment reduction.  If you believe the assessment exceeds 50% of market value, an appeal should be considered. 

Assessments should also be uniform.  If other competing properties are assessed lower than your property without justification, there may be a uniformity issue which can warrant an assessment reduction.   

Assessment appeals for commercial, industrial and developmental real property and commercial, industrial, or utility personal property may be filed in the Tax Tribunal by May 31.  For these appeals, a local board of review appeal is now optional.  Concerning personal property appeals, the option of skipping the local board of review is conditioned upon the filing of the required personal property statement.

Appeals of agricultural, residential or timber-cutover real property, or agricultural personal property must be preceded by an appeal to the local board of review, and can then be further appealed to the Tax Tribunal by July 31.  

The assessment notices also contain the assessor’s classification of real property, either: (1) agricultural, (2) commercial, (3) industrial, (4) residential, (5) timber cut-over, or (6) developmental.  Personal property is classified as: (1) agricultural, (2) commercial, (3) industrial, (4) residential, or (5) utility.  Classifications are used for three purposes: (i) equalization (typically of little interest to taxpayers); (ii) to determine deadlines for appealing valuation or classification issues; and (iii)  classifications control the application of certain exemptions (for example, industrial personal property is exempt from the 6 mill State Education Tax and up to 18 mills of local school district operating millage.  Commercial personal property is exempt from up to 12 mills of local school district operating millage).   The appeal procedure for classification appeals is different than the appeals procedure for assessment appeals that are based on value or uniformity.  Classification appeals are first made at the Local Board of Review in March and further appeal is then allowed to the State Tax Commission by June 30. 

A separate post will address Michigan’s new property tax exemption for manufacturing personal property and what action must be taken by February 21 to claim the exemption. 

The approaching deadlines are as follows:

  • March (dates vary by jurisdiction) – Appeals to local Boards of Review are a prerequisite to further appeal for residential, agricultural and timber real property assessments to local and property classification appeals.  Appeals of other types of property may be made to the Board of review.
  • February 21, 2017 – Form 5278 application for exemption of manufacturing personal property. 
  • February 21, 2017 – This is also the deadline for filing the standard personal property statement Form 4175. 
  • May 31, 2017 – Assessment appeals to Tax Tribunal for commercial, industrial and developmental real property and commercial, industrial, or utility personal property
  • June 30, 2017 – Appeals of classification decisions from Board of Review to State Tax Commission
  • July 31, 2017 – Appeals of Board of Review decisions to Tax Tribunal of agricultural, residential or timber-cutover real property, or agricultural personal property

For further information, contact Bob Rhoades in the Detroit office at (313) 223-3046.

Monday, January 30, 2017

Federal Gift, Estate Tax and Generation-Skipping Transfer Tax Exemptions & the Gift Tax Annual Exclusion Amount Are Subject to Annual Increase for Inflation

By: Tip Richmond

The exemptions were increased in 2017 from  $5,450,000 to $5,490,000, and the annual exclusion remains the same at $14,000 per donee. These rules mean the following: 

            1.         Each individual can give up to $14,000 per donee (e.g., child/grandchild) per year without any gift tax consequences.  Gifts to US citizen spouses can be unlimited due to the unlimited gift tax marital deduction; 

            2.         Each individual can transfer up to $5,490,000 of assets to non-spouse beneficiaries during lifetime and/or at death without any gift or estate tax consequences.  An individual can transfer during lifetime and/or at death an unlimited amount of property to a US citizen spouse outright or in trust without gift or estate tax consequence due to the unlimited estate tax marital deduction.  The combination of these rules means: 

                        a.         An unmarried individual can transfer $5,490,000 to beneficiaries other than a spouse (e.g., children, grandchildren or trust for spouse and descendants) before any Federal gift or estate tax will be due (and then at the 40% rate); 

                        b.         A married couple can transfer up to $10,980,000 to beneficiaries before any estate tax will be due; 

                        c.         With more sophisticated planning, an unmarried individual can transfer $5,490,000 of assets to trusts for children (and grandchildren) that will be exempt from any estate or Generation Skipping Transfer Tax at the death of the child (including appreciation during the child’s lifetime).  That amount is $10,980,000 for a married couple.


 For more information, call Tip Richmond in our Lexington, Kentucky office at 859-899-8712.