Expect the Unexpected Tax Planning in Uncertain Times

Transcription

1 Expect the Unexpected Tax Planning in Uncertain Times Stacy E. Singer Midwest Fiduciary Practice Leader 2011 Northern Trust Corporation northerntrust.com 1 1 EXPERIENCE THE RIGHT PRTNERSHIP

2 Today s genda Projected Budget Deficit for FY 2012 Tax Relief ct of 2010 Whither Taxes? The Battle Over IRS Funding Status of 2010 Health Care Legislation Tax Strategy Patents Selected Federal Tax Cases Selected dministrative Initiatives Same-Sex Couples Few Interesting Tax Statistics 2 2 EXPERIENCE THE RIGHT PRTNERSHIP

3 Projected Budget Deficit Projected Budget Deficit for FY 2012 $973 billion Source: Congressional Budget Office, January EXPERIENCE THE RIGHT PRTNERSHIP

4 2010 Tax Relief ct Transfer Taxes Transfer Tax landscape, Tax Exemption Rate Exemption Rate Exemption Rate Exemption Rate Gift $1M 35% $5M 35% $5.12M 35% $1 (?)M 55% (?) Estate $5M* 35%* $5M 35% $5.12M 35% $1 (?)M 55% (?) GST $5M 0% $5M 35% $5.12M 35% $1** (?)M 55% (?) *Executors of 2010 decedents can also elect into a no estate tax/modified carryover basis regime. **Indexed for inflation 4 4 EXPERIENCE THE RIGHT PRTNERSHIP

5 2010 Tax Relief ct Transfer Taxes (cont.) Planning opportunities in 2012 Gifts to the next generation, whether outright or in trust Lifetime generation-skipping transfers 5 5 EXPERIENCE THE RIGHT PRTNERSHIP

6 2010 Tax Relief ct Transfer Taxes (cont.) Problem reas Impact of 2010 law changes on existing documents Coping with uncertainty about 2013 DRFTING EXMPLE: If my wife survives me, the trustee as of my death shall set aside out of the trust estate as a separate trust for her benefit (undiminished to the extent possible by any estate or inheritance taxes or other charges) a fraction of the trust property of which (a) the numerator is the smallest amount which, if allowed as a federal estate tax marital deduction, would result in the least possible aggregate of (i) federal estate tax and (ii) state death taxes which are based upon the state death tax credit, that would be payable by reason of my death, but in all events the numerator shall be at least $, and (b) the denominator is the federal estate tax value of the assets included in my gross estate which became (or the proceeds, investments or reinvestments of which became) trust t property. 6 6 EXPERIENCE THE RIGHT PRTNERSHIP

7 2010 Tax Relief ct Transfer Taxes (cont.) Problem reas (cont.) Portability DRFTING EXMPLE: The executor shall calculate the amount of my deceased spousal unused exclusion amount under Section 2010(c)(4) of the Internal Revenue Code of 1986, as amended and as in effect from time to time (the Code ), and elect to have such amount taken into account in computing the applicable exclusion amount of my surviving spouse under Section 2010(c)(5) of the Code. The executor is authorized to pay any expenses or costs associated with making such election. The executor shall notify my wife that such election was made, and shall provide evidence of such election, including the total deceased spousal unused exclusion amount for which the election was made. 7 7 EXPERIENCE THE RIGHT PRTNERSHIP

8 2010 Tax Relief ct Regular Income Tax 2012 Rates Married Filing Jointly Single Taxable Income Rate Taxable Income Rate Not over $17,400: 10% Not over $8,700: 10% $17,401 - $70,700: $70,701 - $142,700: 15% 25% $8,701 - $35,350: $35,351 - $85,650: 15% 25% $142,701 $217,450: 28% $85,651 $178,650: 28% $217,451 $388,350: 350: 33% $178,651 $388,350: 350: 33% Over $388,350: 35% Over $388,350: 35% 8 8 EXPERIENCE THE RIGHT PRTNERSHIP

9 2010 Tax Relief ct Long-term capital gains and qualified dividends Maximum Rate, 2012 Long-Term Capital Gain & Qualified Dividends Married Filing Jointly Single Taxable Income Rate Taxable Income Rate $70,701 and up: 15% $35,351 and up: 15% 9 9 EXPERIENCE THE RIGHT PRTNERSHIP

10 Whither Taxes The Moment of Trust, Report of the National Commission on Fiscal Responsibility and Reform (December, 2010) President Obama s 2012 budget proposal, 4/13/11 Budget Control ct of 2011, enacted 8/2/11 Joint Select Committee on Deficit Reduction Committee s statutory goal: to reduce the deficit by at least $1.5 trillion by fiscal 2021 If, by 1/15/12, Congress fails to pass (or President Obama does not sign) legislation reducing the deficit by at least $1.2 trillion, massive automatic spending cuts will begin on 1/2/13 Result: Deadlock. bsent further action, automatic spending cuts beginning 1/2/13 10 EXPERIENCE THE RIGHT PRTNERSHIP

11 Whither Taxes President Obama s Plan for Economic Growth and Deficit Reduction, Living Within Our Means and Investing in the Future, 9/21/11 Proposed H.R. 3630, merican Jobs ct of 2011 Temporary Payroll Tax Cut Continuation ct of 2011, signed 12/23/11 Continued the payroll tax holiday until 2/29/12 Democrats agreed to appoint conferees to address H.R EXPERIENCE THE RIGHT PRTNERSHIP

12 Whither Taxes Inaction on Tax Extenders Package for 2012 Sensible Estate Tax ct of 2011 (H.R. 3467), introduced 11/17/11 by Rep. Jim McDermott (D- Wash) States step into the gap New York passes Millionaire s Tax. 12 EXPERIENCE THE RIGHT PRTNERSHIP

13 Status of 2010 Health Care Legislation Tax impact as enacted $438 billion in new taxes and fees New oversight duties for IRS 42 separate new tax provisions Sections repeated to date Free Choice Vouchers (IRC Section 139D) Form 1099 reporting for goods and services provided by corporations (IRC Section 6041 (h)) Class ct Review by U.S. Supreme Court 13 EXPERIENCE THE RIGHT PRTNERSHIP

14 Tax Strategy Patents merica Invents ct, enacted 9/16/11 14 EXPERIENCE THE RIGHT PRTNERSHIP

15 Selected Federal Tax Cases Judicial deference to Tax Regulations, Mayo v. U.S., U.S., No , 1/11/11 Judicial deference redux, U.S. v. Home Concrete & Supply LLC, U.S., No , 139 cert. granted 9/27/11 IRC Section 2036 Estate of Riese vcomm v. Comm., T.C. Memo (3/15/11) Estate of Turner v. Comm., T.C. Memo (8/30/11) Step transaction doctrine, Linton v. U.S. (9 th Cir., 1/21/11) 15 EXPERIENCE THE RIGHT PRTNERSHIP

16 Selected Federal Tax Cases Income tax implications of certain gifts, Lang v. Comm., T.C. Memo (12/30/10) Income tax charitable deduction Substantiation, Schrimsher vcomm v. Comm., T.C. Memo (3/28/11). Enforceable-in-perpetuity requirement for conservation easements, Kaufman v. Comm., 136 T.C. No. 13 (4/4/11) Inadmissible ibl appraisal, Boltar, LLC L.L.C. v. Comm., 136 T.C. No. 14 (4/5/11) 16 EXPERIENCE THE RIGHT PRTNERSHIP

17 Selected Federal Tax Cases Sale of state conservation credits, Tempel v. Comm., 136 T.C. No. 15 (4/5/11) Statutory executor, Gudie v. Comm., 137 T.C. No. 13 (11/30/11) Omission of Consideration in Gift Letter, Cohan v. Comm., T.C. No , T.C. Memo (1/10/12) 17 EXPERIENCE THE RIGHT PRTNERSHIP

18 Selected dministrative Initiatives Decanting 2012 Offshore Voluntary Disclosure Initiative ( OVDI ) Implementation ti of Foreign sset Reporting under HIRE ct Exempt Organizations FY 2011 Work Plan Other Gift and Estate Tax Developments Power of Substitution: Rev. Rul , published 12/5/11 lternate Estate Valuation Proposed Regulations issued Rev. Proc , issued October 17, EXPERIENCE THE RIGHT PRTNERSHIP

19 Same-Sex Couples Windsor v. U.S., No. 1:10-cv-8435 (S.D. N.Y.) New York Marriage Equality ct, enacted 6/24/11, effective 7/24/11 (Chapters 95 and 96 of the Laws of 2011) Illinois Religious Freedom Protection and Civil Union ct (750 ILCS 75/.et seq) IRS guidance for registered domestic partners in community property states Perry v. Brown, --- P.3d ----, 52 Cal.4th 1116, 2011 WL , C. Supreme Court, issued 11/17/11 19 EXPERIENCE THE RIGHT PRTNERSHIP

20 Few Interesting Tax Statistics 2011 Enforcement Statistics Increase in Tax Gap Income Tax Collected Drops 20 EXPERIENCE THE RIGHT PRTNERSHIP

21 Legal, Investment and Tax Notices LEGL, INVESTMENT ND TX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. IRS CIRCULR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice, see * The materials in this presentation are current through January 15, EXPERIENCE THE RIGHT PRTNERSHIP