Swiss Banks complicit?

Thursday, August 18, 2011

Swiss Banks: Aiding and Abetting  (Editorial)

Published  August 17,2001     NY Times(print)

Despite all of the I.R.S.’s efforts, wealthy American tax cheats are still able to hide their money because Swiss banks are still eager to help them.

An indictment that was disclosed earlier this month by the United States attorney in Manhattan noted that when the Swiss bank UBS — under strong pressure from Washington — abandoned the secret account business, one of its bankers left, taking with him several clients for whom he then opened secret accounts at five other Swiss banks. Another indictment claims that a Swiss financial adviser who managed secret funds for American clients moved accounts from UBS to two private Swiss banks.

Both advisers are accused of using shady tactics, like opening phony businesses in Hong Kong and fake foundations in Liechtenstein to conceal the money from the Internal Revenue Service. The banks, which are not named in the indictments, were not accused in the fraud because the advisers gave them false documents stating that the account owners were not American. But the banks did have information that could have alerted them to the accounts’ ownership had they done better due diligence.

These indictments follow the disclosure by Credit Suisse that it was the target of a criminal investigation by the Justice Department into how Swiss institutions assisted American income tax evaders. The cases underscore how deeply Swiss banks rely on tax evasion.

The United States government, which fined UBS $780 million and forced it to reveal data on 4,450 American customers, is reportedly negotiating a global agreement with the Swiss government that could result in a hefty collective fine against these banks. Switzerland is again resisting demands for more information about American clients. Washington should not stop pushing until all Swiss banks hand over their files and close those accounts

Warren Buffett on Taxes

Monday, August 15, 2011

Reuters reported that Billionaire Warren Buffett urged U.S. lawmakers to raise taxes on the country's super-rich to help cut the budget deficit, saying such a move will not hurt investments.

"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," The 80-year-old "Oracle of Omaha" wrote in an opinion article in The New York Times.

Buffett, one of the world's richest men and chairman of conglomerate Berkshire Hathaway Inc , said his federal tax bill last year was $6,938,744.

"That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income - and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent," he said.

Lawmakers engaged in a partisan battle over spending and taxes for more than three months before agreeing on August 2 to raise the $14.3 trillion U.S. debt ceiling, avoiding a U.S. default.

"Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness," Buffett said.

Buffett said higher taxes for the rich will not discourage investment.

"I have worked with investors for 60 years and I have yet to see anyone - not even when capital gains rates were 39.9 percent in 1976-77 - shy away from a sensible investment because of the tax rate on the potential gain," he said

"People invest to make money, and potential taxes have never scared them off."

IRS Penalties Defined

Thursday, August 11, 2011

On February 8, 2011, the Internal Revenue Service (IRS) announced an IRS amnesty program called 2011 Offshore Voluntary Disclosure Initiative (OVDI). The amnesty program is for taxpayers with unreported foreign financial accounts, entities, or income. The OVDI limits the potential penalties associated with the failure to disclose foreign accounts, assets, and foreign income. The 2011 OVDI limits taxpayers with undisclosed offshore accounts and assets exposure to civil penalties. Outside of the OVDI program, U.S. taxpayers discovered with unreported foreign bank accounts, unreported foreign income, and certain undisclosed foreign assets face the possibility of paying harsh penalties such as:

  1. A penalty for failing to report a foreign account which could be as high as the greater of $100,000 or 50 percent of the total balance of a foreign account in each year held
  2. A fraud penalty equal to 75 percent of an unpaid tax
  3. Penalties for the failure to file information returns.

Furthermore, individuals with undisclosed foreign income and accounts face the possibility of criminal prosecution. U.S. taxpayers that wish significantly limit their exposure to the above mentioned penalties must act fast. Taxpayers that wish to participate in the 2011 OVDI have until August 31, 2011 to complete all requirements of the program. Call us now for a free confidential analysis to gain information on how to remove the criminal element from your argument if you feel this applies to you. Deadline is August 31st!


IRS Penalties: The law imposes penalties to ensure that all taxpayers pay their taxes. Some of these penalties are discussed below. If you underpay your tax due to fraud, you may be subject to a civil fraud penalty. In certain cases, you may be subject to criminal prosecution.  Failure-to-file penalty. If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is 5% of the tax not paid by the due date for each month or part of a month that the return is late. This penalty cannot be more than 25% of your tax, but it is reduced by the failure-to-pay penalty (discussed next) for any month both penalties apply. However, if your return is more than 60 days late, the penalty will not be less than $100 or 100% of the tax balance, whichever is less. You will not have to pay the penalty if you can show reasonable cause for not filing on time.  Failure-to-pay penalty. You may have to pay a penalty of 1/2 of 1% of your unpaid taxes for each month or part of a month after the due date that the tax is not paid. This penalty cannot be more than 25% of your unpaid tax. You will not have to pay he penalty if you can show good reason for not paying the tax on time.  Penalty for frivolous return. You may have to pay a penalty of $500 if you file a return that does not include enough information to figure the correct tax or that shows an incorrect tax amount due to:

  1. A frivolous position on your part, or
  2. A desire to delay or interfere with the administration of federal income tax laws.

This penalty is in addition to any other penalty provided by law.  Accuracy-related penalty. An accuracy-related penalty of 20% applies to any underpayment due to:

  • Negligence or disregard of rules or regulations, or
            Substantial understatement of income tax. This penalty also applies to conditions not discussed here. Even though an underpayment was due to both negligence and substantial underpayment, the total accuracy-related penalty cannot exceed 20% of the underpayment. The penalty is not imposed if there is reasonable cause accompanied by good faith.  Fraud. If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax

Criminal Penalties  You may be subject to criminal prosecution (brought to trial) for actions such as:

  • Tax evasion,
  • Willful failure to file a return, supply information, or pay any tax due,
  • Fraud and false statements, or
  • Preparing and filing a fraudulent return.
Please call Strategic Tax Lawyers today at (800)NOW-IRS-LEVY for a free confidential analysis on where you stand, or if you feel you may be subject to the aforementioned penalties.

Reporting Option Applies to Many Larger Estates

Monday, August 8, 2011
2010 Form 8939 is Due Nov. 15;
Reporting Option Applies to Many Large Estates
WASHINGTON – The Internal Revenue Service issued guidance today on the treatment of basis for certain estates of decedents who died in 2010.  The guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply.  Form 8939, the basis allocation form required to be filed by executors opting out of the estate tax, is due Nov. 15, 2011.
Under the guidance issued today, an executor must file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, to opt out of the estate tax and have the new carryover basis rules apply. The IRS expects to issue Form 8939 and the related instructions early this fall.
Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939. Please call us at (800)669-4775 for a free analysis of your estate options.

New Innocent Spouse Rules

Monday, August 8, 2011

The Internal Revenue Service recently announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.

"In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief," said IRS Commissioner Doug Shulman. "This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future."

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

  • The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
  • A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
  • The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

CA UBS Clients Plead Guilty

Monday, August 8, 2011
Department of Justice Seal Department of Justice
FOR IMMEDIATE RELEASE MONDAY, JUNE 20, 2011 WWW.USDOJ.GOV TAX (202) 514-2007 TDD (202) 514-1888


WASHINGTON - Sean Roberts and Nadia Roberts of Tehachapi, Calif., pleaded guilty before U.S. District Judge Anthony W. Ishii of the Eastern District of California to a criminal information charging them with filing a false tax return related to an undisclosed Swiss bank account that they maintained at UBS, as well as other offshore bank accounts, the Justice Department and the Internal Revenue Service (IRS) announced today.

According to court documents and statements made in court, the Robertses pleaded guilty to filing a false 2008 individual U.S. income tax return in which they failed to report that they had an interest in or a signature authority over a secret Swiss financial account at UBS, as well as several other foreign accounts, failed to report income earned on the foreign accounts, and falsely deducted transfers from their domestic business to the foreign accounts on their corporate tax returns. The false deductions allowed the Robertses to under-report their income on their individual income tax returns. The Robertses own and operate the National Test Pilot School and Flight Research Incorporated in Mojave, Calif. National Test Pilot School is a non-profit educational institute that trains test pilots from domestic and foreign aerospace industries and governments. Flight Research Inc. owns and maintains most of the aircraft used by the school.

In or about 1991, the Robertses opened a bank account at an Isle of Man branch of a United Kingdom bank, in the name of nominee entity Interline Trade Associates Limited. From at least 2002 through 2004, the Robertses transferred funds from their company, Flight Research Incorporated of Mississippi (FRI Mississippi), to the Interline account, and caused the transfers to be falsely deducted as interest payments on corporate income tax returns as a sham aircraft loan.

In or about 1995, the Robertses, with the assistance of a UBS banker, established an account in their own names at UBS in Switzerland. In 2004, the Robertses, with the assistance of an account manager at a Zurich-based financial services company, acquired a nominee Hong Kong entity called Excalibur Investments Limited and opened a new UBS account in Excalibur’s name. In July 2004, the Robertses closed the UBS account in their own names and transferred the assets to the nominee Excalibur UBS account. In February 2005, the Robertses also closed their Interline account and, with the assistance of the Zurich account manager, transferred the assets to the Excalibur UBS account. From 2004 through 2008, the Robertses transferred more than $1.2 million from FRI Mississippi to the Excalibur UBS account, and caused the transfers to be falsely deducted as interest payments on corporate income tax returns as a sham aircraft loan.

In or about May 2008, the Robertses closed their Excalibur UBS account and, with the assistance of the Zurich account manager, transferred more than $4.8 million to an account in Excalibur’s name at a Swiss branch of a Liechtenstein bank. This was done after the account manager informed the Robertses that UBS was under investigation by U.S. authorities and that they should leave UBS to ensure the continued secrecy of their account. In 2008, the Robertses transferred more than $1.4 million from FRI Mississippi to the Excalibur account at the Liechtenstein bank, and again caused the transfers to be falsely deducted on a corporate income tax return. Also in May 2008, the Robertses, again with the assistance of the Zurich account manager, opened a bank account in the name of Modest Winner, a nominee Hong Kong entity, at the Liechtenstein bank. In 2008 and 2009, the Robertses transferred funds from another of their entities, Tisours LLC, to the Modest Winner account. In 2009, with the assistance of the Zurich account manager, the Robertses transferred that account to a bank in Hong Kong. The Robertses also maintained numerous undeclared foreign bank accounts in New Zealand and South Africa held in their own names.

The Robertses admitted to filing false tax returns for tax years 2004 through 2008 that concealed their interest in these various offshore accounts, failing to report income earned from these accounts, and falsely deducting transfers from their business to these accounts. The Robertses also admitted that they never filed reports of Foreign Bank and Financial Accounts (FBARs) disclosing their interest in any offshore financial accounts. As part of their plea agreements, the Robertses agreed to pay restitution to the IRS in the amount of $709,675, and to pay a 50 percent penalty for the one year with the highest balance in their offshore accounts in order to resolve their civil liability for failing to file FBARs, Forms TD F 90-22.1.

In February 2009, UBS entered into a deferred prosecution agreement under which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of their agreement, UBS provided the United States government with the identities of, and account information for, certain U.S. customers of UBS's cross-border business, including the Robertses.

Sentencing has been set for Sept. 6, 2011, and the Robertses remain free on bail pending sentencing, where each faces a maximum sentence of three years in prison.

U.S. Attorney for the Eastern District of California Benjamin B. Wagner and Principal Deputy Assistant Attorney General John A. DiCicco of the Justice Department’s Tax Division commended the efforts of the IRS-Criminal Investigation agents who investigated the case and Tax Division Trial Attorneys Timothy J. Stockwell and John P. Scully, as well as Assistant U.S. Attorney Mark E. Cullers, who are prosecuting the case.

More information about the Tax Division and its enforcement efforts is available at www.justice.gov/tax.

Offshore Accounts under new congressional scrutiny

Thursday, August 4, 2011

With officials in Washington struggling over a deal to cut the nation’s deficit, two senior Senate Democrats on Tuesday urged the Federal government to focus on the billions of dollars in revenue lost to offshore tax havens.


A bill introduced by Carl Levin of Michigan and Kent Conrad of North Dakota would tighten rules that allow hedge funds and corporations in the United States to skirt Federal taxes by opening shell companies overseas.


The measure would also change the IRS regulations that allow traders of credit default swaps to avoid paying federal taxes on many transactions that begin in the United States. And to help tax collectors track down hidden assets overseas, the proposal would empower the treasury department to ban any foreign bank that refused to cooperate with the IRS.


By closing the loopholes, the plan could bring the treasury as much as $100 billion a year, according to various estimates cited by Mr. Levin:


“The idea that we have all these companies that avoid paying taxes through all these gimmicks is disgraceful,” said Mr. Levin, the chairman of the Senate permanent subcommittee on investigations. “And that we tolerate it is disgraceful.”


Mr. Conrad, who is Chairman of the Senate Budget Committee, said that by cracking down on offshore abuses, Congress and the Obama Administration could make a substantial reduction in the deficit without resorting to either tax increases or severe cuts to programs like Medicare or social security.


Mr. Conrad said the proposal might also break the logjam that has stalled the deficit negotiations. Mr. Obama has refused to approve a deal that does not include increased revenue, while Congressional Republicans have said they will oppose any measure that increases taxes.


The proposal got a cool reception from House Republicans, some of whom consider ending any tax break a form of tax increase. Representative Eric Cantor, the Virginia Republican who is majority leader, has vowed to oppose any deficit reduction plan that includes tax increases and has said that loopholes can be addressed in some future debate on tax reform.


“As Eric has made clear, tax increases cannot pass the house,” said his spokeswoman, Liana Fallen. “While the president has been seemingly obsessed with certain special-interest loopholes in the debt-limit debate, Eric believes the broad discussion of tax policy belongs in the larger debate on fundamental tax reform.”


While Mr. Levin has sponsored an assortment of bills to limit offshore tax havens over the last decade, the plan introduced Tuesday included several sweeping new features. One provision would change the way the tax code treats derivatives trades. Under current law, the IRS defines the “source” of derivative income as the location where a trade is paid rather than where the money originates. That allows many traders to legally sidestep federal taxes by routing trades offshore.

Mr. Levin called that “absurd” and said his proposal would institute a common sense source rule for trades involving credit-default swap: sourcing — and taxing — it according to where the money originates.


Another proposal would try to discourage United States companies from using bookkeeping maneuvers to shift their profits to tax havens. In recent years many multinationals — including pharmaceutical giants like Pfizer and technology companies like IBM — have cut their United States taxes by booking increasing amounts of their profits abroad. Mr. Levin’s proposal would require all United States multinationals to provide more information in their regulatory filings, including a country-by-country breakdown of their sales, employment, financing and tax payments.


The bill would also prevent companies and hedge funds from escaping American taxes by filing incorporation documents abroad and declaring themselves foreign companies. During public hearings in 2008, Mr. Levin’s subcommittee heard testimony from three hedge funds — Highbridge Capital, Angelo Gordon and Maverick Capital — which were incorporated in the Cayman Islands, but had no offices or employees there. Mr. Levin’s proposal would allow the IRS to define a domestic company as one that is managed and controlled within the United States. Mr. Levin said he was “hopeful” that President Obama, who supported two similar bills when he was a Senator, would make the issue of offshore tax havens a part of the deficit negotiations. When asked if the President intended to do so, an administration official declined to comment.

New rules for Estate Taxes

Wednesday, August 3, 2011

On December 17, President Obama signed into law the

Tax Relief, Unemployment Insurance Reauthorization, and

Job Creation Act of 2010 (the “Act”), extending the Bush

tax cuts for two years. To the surprise of many, the Act

made substantial changes in the law governing estate, gift,

and generation skipping transfer taxes, although also on a

temporary basis

New Law Temporarily Extends Bush Tax Cuts and Provides New Rules for Estate, Gift, and Generation Skipping Transfer Taxes

For the first time, the estate tax exemption will be “portable”

between spouses. This means that the surviving spouse will

be able to use the predeceased spouse’s unused exemption

at the survivor’s death.

The gift tax exemption will also be portable between spouses.

This means that the surviving spouse will be able to use the

predeceased spouse’s unused gift tax exemption, as well as

the surviving spouse’s gift tax exemption, to make lifetime gifts

that will not bear gift taxes.

The absence of the GST tax in 2010 and reinstatement in

2011 will provide some clients with a limited time opportunity

to make highly tax-effective gifts to grandchildren, more

remote descendants, and other significantly younger beneficiaries.

However, the GST tax exemption taking effect in 2011

is not portable between spouses.

Provisions for 2010 decedents. The legislation also

provides clarification of the applicable law (or laws) for the

estates of 2010 decedents, although each such estate must

consider the ramifications of newly available tax elections

regarding the applicable law. During 2010, there has been

no estate tax, but only a very limited adjustment to the

income tax basis of the decedent’s assets. Many smaller

estates would not have paid any tax under the $3,500,000

exemption that was in effect in 2009, but as a result of

death in 2010, the decedent’s assets were deprived of

much of the tax basis increase they would have received

had the death occurred in 2009.

The personal representatives of 2010 decedents will now

have a choice to apply the original 2010 law of no estate tax

and limited basis adjustment or apply the new law and pay a

35% estate tax after a $5,000,000 exemption and receive a

full step up in tax basis (compared to a 45% estate tax and

$3,500,000 exemption for 2009 estates). The default position

is the new law, and the personal representative must make

an election to obtain the no estate tax, limited basis increase

result. The election must be made within nine months of the

enactment of the new law, but the form for making the election

has not yet been prescribed.

The new law did not, as anticipated, require that grantor

retained annuity trusts (GRATs) have a minimum 10-year

term. Therefore, short-term GRATs in this low interest rate

environment remain an attractive planning tool, particularly if

a client wants to make gifts in excess of the new, higher gift

tax exemption.

Estate, Gift and Generation Skipping Transfer Tax

Planning Ramifications

The Act creates a number of planning opportunities and

issues that should be addressed relative to the estate, gift

and GST taxes:

Many gifts should be deferred to 2011. Prior to the

introduction of this legislation, many taxpayers were making

or considering significant taxable gifts in 2010 to take

advantage of what was thought to be a one time opportunity

to have a 35% gift tax rate apply. Now, most gifts in excess

of the $13,000 annual gift tax exclusion amount should be

deferred to 2011 for taxpayers who have already used their

$1,000,000 lifetime exemption. On January 1, the exemption

will be $5,000,000, and significant additional tax-free gifts can

be made.

2010 Generation skipping gifts and transfers may still

be beneficial. It may still be beneficial to make generation

skipping gifts to grandchildren and non-family beneficiaries

more than 37½ years younger than the donor during 2010.

There is no GST tax in 2010, and some may still find it

advantageous to make generation skipping transfers in 2010

and pay the 35% gift tax (assuming the $1,000,000 exemption

has been used), in order to eliminate further transfer taxation

for one or more generations, while preserving the newly

enacted $5,000,000 GST tax exemption for future generation

skipping transfers. The $5,000,000 GST tax exemption will

automatically be allocated to any 2010 GST gift, unless you

make the election not to allocate such exemption, which you

must do in order to preserve the new $5,000,000 exemption

for future use.

Certain existing trusts that permit discretionary distributions

by the trustee may find it advantageous to make distributions

during 2010 that would otherwise be subject to GST tax, but

will not be if the distribution occurs during 2010.

Gifts in 2011 and 2012. There is no certainty that the lifetime

gift tax exemption will remain at $5,000,000 after 2012. Many

taxpayers who have already used their $1,000,000 lifetime

gift tax exemption will want to consider making another

$4,000,000 in gifts during 2011 and 2012. Even if the exemption

is reduced after 2012, it is unlikely that Congress would

try to impose a retroactive gift tax on those who used the full

exemption during 2011 and 2012. Using your full exemption

to make gifts will allow you to escape gift tax on the present

amount of the gift, and to avoid estate tax on any appreciation

in value after the gift that occurs before your death.

New York residents are presented with a unique opportunity

as a result of the $5,000,000 gift tax exemption.

Bypass trusts will still be advantageous. Under the law

in effect through 2009, the “bypass” trust was often created

in order to take full advantage of both spouses’ estate tax

exemptions. At the death of the first spouse, if the decedent

left everything to the survivor, the predeceased spouse’s

estate tax exemption would not be used, and the surviving

spouse’s taxable estate would include the full amount of

the assets inherited from the predeceased spouse. In that

situation, only the surviving spouse’s estate tax exemption

amount could be applied to reduce estate taxes. To avoid

this result, a bypass trust was often created after the first

spouse’s death under the terms of the estate plan and

funded with the amount that the decedent could pass free of

estate tax to beneficiaries other than the surviving spouse

and charities (e.g., children and other individuals). Properly

structured, the assets in the bypass trust, regardless of

value at the time of the surviving spouse’s death, were not

subject to estate tax in the surviving spouse’s estate. The

bypass trust could also effectively preserve the predeceased

spouse’s GST tax exemption.

With the Act’s introduction of portability of the estate tax

exemption, bypass trusts are not necessarily required to

utilize both spouses’ estate tax exemptions. However, such

trusts may still be beneficial for other reasons. Beginning

in 2012 (and assuming no further changes in the law), the

$5,000,000 exemption is indexed for inflation. When the

first spouse dies, that spouse’s unused exemption is not

further indexed for inflation after his or her death. It will be

frozen at its level at the time of the first death. The survivor’s

exemption will continue to be indexed until the survivor

dies. This means that it may still be advantageous to fund

a bypass trust at the first death in order to protect future

appreciation in the assets in the bypass trust from estate

taxes in the surviving spouse’s estate, while preserving

use of the survivor’s full exemption (which continues to

be indexed for inflation). Moreover, a properly structured

bypass trust can provide significant protection against the

surviving spouse’s creditors, and can protect the rights of

the remainder beneficiaries (e.g., the predeceased spouse’s

children) from actions taken by the surviving spouse that

would alter or eliminate their inheritance rights.

Keeping a bypass trust as part of your estate plan will also

be useful if the portability feature does not remain in the law

after 2012. Hopefully it is now a permanent feature of the law,

but each year the legislative process becomes increasingly

difficult to predict.

The portability provision in the new law was written in a way

that prevents one from accumulating exemptions through

multiple marriages. Only the unused credit of the spouse

to whom you were last married may be carried over to your

estate. In contrast, a bypass trust will also protect against the

loss of the predeceased spouse’s exemption by reason of

the surviving spouse’s marriage to a new spouse. Also, the

unused estate tax exemption of the first spouse will be available

to the second spouse only if the predeceased spouse’s

estate files an estate tax return and elects on the return to

pass the unused exemption to the surviving spouse. The

statute of limitations will remain open for the estate tax return

of the predeceased spouse for the limited purpose of determining

the amount of exemption available to the estate of the

surviving spouse.

Taxpayers should focus on amount that will go to the

bypass trust. Taxpayers who have estate plans that fund a

bypass trust at the first death with the full estate tax exemption

amount must be aware that for at least 2011 and 2012,

this will mean that up to $5,000,000 (but no more than onehalf

of all community property in community property states)

will go into that trust. In estates of more modest size, this may

be far more assets than the couple desired to put into this kind

of irrevocable trust. We previously warned of this problem in

2009, when the exemption increased to $3,500,000.

Window to make qualified disclaimers with respect to

2010 decedents may have been extended. In a number

of cases, when someone died in 2010, the surviving spouse

disclaimed a portion of the predeceased spouse’s property

in order to reduce his or her eventual estate tax. In some

families, the children who benefited from the disclaimer also

disclaimed in favor of their children to take advantage of

the absence of the GST tax in 2010. Some families were

reluctant to use disclaimers due to concern that the estate,

gift and GST taxes might be restored retroactively to apply in

2010. Under Internal Revenue Code (“IRC”) Section 2518, a

qualified disclaimer must be made within nine months after

the decedent’s death so the window had closed for decedents

who passed away early in 2010.

The Act extends the period to make a qualified disclaimer so

that the period will close not sooner than nine months after

the date of enactment of the Act. This will extend the period

to September 17, 2011, which becomes September 19

because the 17th is a Saturday. Waiting so long may be

problematic because a disclaimer cannot be made if the

beneficiary has accepted the benefit of the property, and

certain state disclaimer statutes may also impose nine month

limitations. A disclaimer may still be possible but the state’s

law will have to be studied. It should be noted that there is

some uncertainty about the validity of disclaimers made

under the new federal tax law that do not comply with state

law requirements.

Evaluating options for 2010 decedents. As noted in the

Executive Summary above, the Act provides a choice for

estates of 2010 decedents. The default rule is that estate tax

will apply with a maximum rate of 35%, a $5,000,000 exemption,

and full fair market value basis accorded the assets. This

will likely be advantageous for estates of less than the new

$5,000,000 estate tax exemption, or in which the decedent’s

estate plan deferred estate taxes until the surviving spouse’s

death, both of which would have no estate tax due but would

benefit from the full basis increase. The personal representative

may elect to apply the previous 2010 rules and have no

estate tax and only the limited basis increase. The election

to apply these rules must be filed in a time and manner to be

prescribed by the Secretary of the Treasury.

If the personal representative determines that a 2010 estate

should be subject to estate tax, the earliest date that the

estate tax return and payment of tax will be due is September

19, 2011 (nine months from date of enactment, then to the

next business day). If the personal representative elects the

no tax and carryover basis regime, the basis allocation report


Wednesday, August 3, 2011


There are many large, well recognized, national tax relief companies represented in the Greater Los Angeles area that propose to help you settle your tax issues.

Question: Are they providing a level of service to you that is not only driven by honesty and integrity, but gain results for you based on the same principles? Are their practitioners held to any standard at all? Here are a few news stories to provide cautionary enlightenment that may help outline the dangers of hiring such a company to settle your tax debt, and aid in providing guidance in making an informed choice of whom to hire to fix your tax problem:


Strategic Tax Lawyers, LLC is a law firm specializing in all tax matters, and is driven and guided by integrity, and their results are gained by the same. Please call us today for a quick and free tax analysis at: (800)NOW-IRS-LEVY