DECEMBER 26, 2010 UPDATE
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Gutter Chaves Josepher Rubin Forman Fleisher Law Firm
Dec 26, 2010, 2:22:35 PM12/26/10
to Tax & Business Update
December 26, 2010
An Electronic Newsletter of Gutter Chaves Josepher Rubin Forman
Fleisher P.A.
Charles (Chuck) Rubin, Editor/Author (except as otherwise noted) ©
2010
******************************
CONTENTS:
1. PROVISIONS OF THE NEW TAX LAW - TRANSFER TAXES
2. PORTABILITY OF EXEMPTIONS UNDER THE NEW TAX ACT AND OTHER
PROVISIONS
3. PROVISIONS OF THE NEW TAX LAW – FOREIGN PROVISIONS
4. FIRM ANNOUNCEMENTS
5. ABOUT OUR FIRM
******************************
1. PROVISIONS OF THE NEW TAX LAW - TRANSFER TAXES
We will undertake to summarize the key provisions of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010
over several postings. Let’s start with the new transfer tax
provisions. Note below that there are some unique opportunities for
conducting generation skipping transfers prior to 1/1/2011.
A. Estate and GST taxes reimposed for 2010, with reimposition of prior
basis step-up regime.
1. But with election available to avoid estate tax in 2010 on
2010 deaths, which would use the EGTRRA limited basis step-up
provisions.
a) In that situation, the deadline for filing the Form 8939
relating to basis allocation is delayed until 9 months from date of
enactment.
2. But GST tax rate set to zero. Decedent is still considered to
be "transferor" for GST purposes.
a) This is an incentive to make generation skipping
transfers prior to the expiration of 2010, including distributions out
of trusts that will be taxable distributions or taxable terminations.
(1) Outright gifts are subject only to potential gift
taxes.
(a) Which will deplete the estate for estate tax
purposes if the transferor survives an additional three years.
(2) Or to trusts where beneficiaries are all skip
persons.
(a) Consider opting out of GST exemption
allocation to avoid unnecessarily wasting GST exemption.
(b) Post-2010 distributions to beneficiaries at the
grandchild level (but not to beneficiaries of younger generations)
will not be subject to GST tax, per Code §2652(a).
(c) If some desired beneficiaries are
grandchildren and some are greatgrandchildren, you may want to have
separate trusts for the different generation levels.
3. QDOTs subject to estate tax if noncitizen surviving spouse
died in 2010.
B. Increase in exclusion amounts and exemptions to $5 million for
2010-12, with inflation adjustment in 2012.
1. This is an incentive to make lifetime transfers before
12/31/12 to the extent of available exclusions, since the larger
exclusion amounts may revert to much lower amounts in 2013.
a) But generally want to defer until at least 1/1/11 since
gift tax exemption does not increase to $5 million until 2011.
2. However, gift tax exemption remains at $1 million for 2010
gifts.
C. Maximum estate, gift and GST taxes reduced to 35% through 2012.
1. This is an incentive to make lifetime transfers before
12/31/12 to the extent of available exclusions, since the rates may
revert to much higher levels in 2013 (i.e., 55% maximum rates).
2. And gift and estate tax rates are reunified.
D. Extended filing deadlines for estates of decedents dying from
1/1/10 to 12/17/10.
1. 9 months from 12/17/2010 for filing an estate tax return,
paying estate tax, making a disclaimer of an interest passing by
reason of decedent's death, and filing of GST tax returns and making
elections required on a GST tax return).
a) But watch state law limits on time to make a disclaimer.
E. A surviving spouse can use the unused exclusion amount of his or
her LAST deceased spouse for estate tax purposes (but only for spouses
dying before 12/31/12).
1. But it requires an election to be made on the estate tax
return of the first spouse to die. This may mean a return is needed
even though one would not otherwise be required.
2. IRS can readjust available unused exclusion amount of first
spouse to die, even though statute of limitations for examining that
estate tax return has expired.
3. GST exemption amounts are not portable.
4. Credit shelter trusts (in lieu of maximizing transfers to
surviving spouse or a marital deduction trust) may still be desirable
at the death of the first spouse to allow for full use of GST
exemption of first spouse, and to protect against estate tax at second
death arising from appreciation in the value of assets.
a) However, credit shelter trusts lose the opportunity for
basis step-up at the death of the surviving spouse.
F. Return to 2001 rules and rates will occur on 1/1/13 (unless
subsequent changes are made by law).
1. Here we go again!
******************************
2. PORTABILITY OF EXEMPTIONS UNDER THE NEW TAX ACT AND OTHER
PROVISIONS
The new estate tax rules introduce a new concept – portability of
exemption amounts. To the extent a spouse does not fully use the new
$5 million exemption during lifetime time and at death, the surviving
spouse can use the unused portion as well as his or her remaining
exemption. One quirk of the new law is that it will require estates of
the first spouse to die to file an estate tax return, even if no taxes
are due by reason of full coverage under the decedent’s exemption
amount, so as to allow portability of the unused exemption to the
surviving spouse. This will provide work to accountants that might
otherwise see a significant diminution in estate tax return work due
to the increased exemptions. Further, the IRS will be able to audit
the return of the first spouse at any time to adjust the remaining
exemption amount, even after the statute of limitations for the
assessment of tax have expired.
In a provision very favorable to taxpayers, the $5 million exemptions
will be indexed for inflation starting in 2012. Of course, the measure
of inflation is the government’s computation, which many believe
significantly understates actual inflation (see www.shadowstats.com).
But a half a loaf is much better than no loaf.
At first blush, it might seem that the new portability rules do away
with the traditional dual arrangement of a by-pass trust and a marital
gift/trust to make use of the first spouse to die’s exemption.
However, there are still reasons to use such arrangements –
principally to help prevent appreciation in assets pushing the family
above the combined $10 million exemption, to allow full use of the
first spouse to die’s $5 million GST exemption, and to allow for the
use of trusts in second marriage situations. However, the use of a by-
pass trust eliminates the ability to get a step-up in basis on the
trust’s assets at the death of the first spouse. Thus, disclaimer
trust arrangements may be the way to go for many first marriage
situations, allowing the decision of whether and how much to fund into
a by-pass trust for the surviving spouse to be made after the death of
the first spouse based on the circumstances at that time.
******************************
3. PROVISIONS OF THE NEW TAX LAW – FOREIGN PROVISIONS
Unlike the transfer tax area, only modest changes were made to the
foreign provisions of the Internal Revenue Code. Continuing our review
of the changes, below is a summary of the new provisions, most of
which relate to temporary extensions of various favorable rules. For
what they are worth (which may be quite a lot to those few taxpayers
that are impacted), here they are:
A. The Subpart F exception for active financing income is
extended. The temporary exclusions will apply to tax years of a
foreign corporation beginning after Dec. 31, 1998 and before Jan. 1,
2012, and to tax years of U.S. shareholders with or within which such
tax years of foreign corporations end.
B. The look-through treatment for payments between related
controlled foreign corporations under the foreign personal holding
company income rules are extended through 2011.
C. The withholding tax exemption for RIC interest-related
dividends and short-term capital gains dividends paid to foreign
persons is extended for tax years beginning in 2010 and 2011. Also,
the inclusion of RICs in the definition of qualified investment entity
is extended for certain FIRPTA purposes through 2011.
D. The IRS authority to reduce withholding rate to 15% on USRPI
gains passed through to foreign persons by U.S. partnerships, trusts
or estates is extended through 2012.
E. Gain recognition expansion for Code §684 for transfers to
nonresident aliens at death and to foreign grantor trusts that were to
apply in 2010 will apply only to the extent the election is made to
not have the estate tax apply.
F. The allowance of Code §199 deduction for Puerto Rico activities
is retroactively extended two years to taxpayer's first six tax years
beginning after 2005.
G. The possessions tax credit for American Samoa is extended
through 2011 for existing claimants.
******************************
4. FIRM ANNOUNCEMENTS
It is with sadness that we note the death of our friend and partner,
Marvin Gutter, this past Friday. Marvin was a highly talented
attorney, did much in our community, and touched the lives of all who
knew him. He will be greatly missed by all of us. Our sympathy and
condolences go out to Calla, Josh, the other members of Marvin’s
family, and all of Marvin’s many friends and acquaintances.
******************************
5. ABOUT OUR FIRM
Our firm seeks to protect and enhance the individual, family and
business wealth of our clients in the following principal practice
areas: Planning to Minimize Taxes (U.S. & International) • Probate &
Trust Litigation • Estate Planning, Charitable, Marital & Succession
Planning • Business Structuring & Transactions • Trusts & Estates
Administration • Tax Controversies • Creditor Protection.
Please visit our website at http://www.floridatax.com for information
about the firm, our attorneys, articles from recent monthly
newsletters, interesting articles and tax guides, and federal and
Florida tax rates and information. The firm and its attorneys have
been recognized in numerous peer rating guides, such as U.S. News &
World Report law firm rankings, Best Lawyers, Martindale-Hubbell,
Chambers, Who's Who in American Law, Florida Trend's Legal Elite,
Superlawyers, and South Florida Legal Guide Top Lawyers.
******************************
DAILY TAX AND BUSINESS UPDATES AVAILABLE. View prior articles, updates
that we didn't have room for in this newsletter, or read the above
postings when they are first published, by visiting http://www.rubinontax.blogspot.com.
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Having problems receiving this newsletter? Make sure that the E-mail
address "cru...@floridatax.com" is marked as a friend or otherwise set
to clear your spam filters! Subscribe and unsubscribe instructions
should be located at the end of this message - if not, send subscribe
and unsubscribe instructions to cru...@floridatax.com. To be properly
processed, unsubscribe instructions need to come from the applicable
email address or send instructions to cru...@floridatax.com with the
specific address being unsubscribed.
Feel free to forward this newsletter on to anyone who you think may be
interested.
-----------------------------------------------
The Usual Disclaimer: This newsletter summarizes for informational
purposes only information of interest to the clients and friends of
Gutter Chaves Josepher Rubin Forman Fleisher P.A. The information is
condensed from, and a general summary of, legislation, court
decisions, administrative rulings and other information, and should
not be construed as legal advice or opinion, and is not a substitute
for the advice of counsel.
Gutter Chaves Josepher Rubin Forman Fleisher P.A.
Boca Corporate Center
2101 Corporate Blvd., Suite 107
Boca Raton, Florida 33431
561.998.7847
www.floridatax.com
An Electronic Newsletter of Gutter Chaves Josepher Rubin Forman
Fleisher P.A.
Charles (Chuck) Rubin, Editor/Author (except as otherwise noted) ©
2010
******************************
CONTENTS:
1. PROVISIONS OF THE NEW TAX LAW - TRANSFER TAXES
2. PORTABILITY OF EXEMPTIONS UNDER THE NEW TAX ACT AND OTHER
PROVISIONS
3. PROVISIONS OF THE NEW TAX LAW – FOREIGN PROVISIONS
4. FIRM ANNOUNCEMENTS
5. ABOUT OUR FIRM
******************************
1. PROVISIONS OF THE NEW TAX LAW - TRANSFER TAXES
We will undertake to summarize the key provisions of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010
over several postings. Let’s start with the new transfer tax
provisions. Note below that there are some unique opportunities for
conducting generation skipping transfers prior to 1/1/2011.
A. Estate and GST taxes reimposed for 2010, with reimposition of prior
basis step-up regime.
1. But with election available to avoid estate tax in 2010 on
2010 deaths, which would use the EGTRRA limited basis step-up
provisions.
a) In that situation, the deadline for filing the Form 8939
relating to basis allocation is delayed until 9 months from date of
enactment.
2. But GST tax rate set to zero. Decedent is still considered to
be "transferor" for GST purposes.
a) This is an incentive to make generation skipping
transfers prior to the expiration of 2010, including distributions out
of trusts that will be taxable distributions or taxable terminations.
(1) Outright gifts are subject only to potential gift
taxes.
(a) Which will deplete the estate for estate tax
purposes if the transferor survives an additional three years.
(2) Or to trusts where beneficiaries are all skip
persons.
(a) Consider opting out of GST exemption
allocation to avoid unnecessarily wasting GST exemption.
(b) Post-2010 distributions to beneficiaries at the
grandchild level (but not to beneficiaries of younger generations)
will not be subject to GST tax, per Code §2652(a).
(c) If some desired beneficiaries are
grandchildren and some are greatgrandchildren, you may want to have
separate trusts for the different generation levels.
3. QDOTs subject to estate tax if noncitizen surviving spouse
died in 2010.
B. Increase in exclusion amounts and exemptions to $5 million for
2010-12, with inflation adjustment in 2012.
1. This is an incentive to make lifetime transfers before
12/31/12 to the extent of available exclusions, since the larger
exclusion amounts may revert to much lower amounts in 2013.
a) But generally want to defer until at least 1/1/11 since
gift tax exemption does not increase to $5 million until 2011.
2. However, gift tax exemption remains at $1 million for 2010
gifts.
C. Maximum estate, gift and GST taxes reduced to 35% through 2012.
1. This is an incentive to make lifetime transfers before
12/31/12 to the extent of available exclusions, since the rates may
revert to much higher levels in 2013 (i.e., 55% maximum rates).
2. And gift and estate tax rates are reunified.
D. Extended filing deadlines for estates of decedents dying from
1/1/10 to 12/17/10.
1. 9 months from 12/17/2010 for filing an estate tax return,
paying estate tax, making a disclaimer of an interest passing by
reason of decedent's death, and filing of GST tax returns and making
elections required on a GST tax return).
a) But watch state law limits on time to make a disclaimer.
E. A surviving spouse can use the unused exclusion amount of his or
her LAST deceased spouse for estate tax purposes (but only for spouses
dying before 12/31/12).
1. But it requires an election to be made on the estate tax
return of the first spouse to die. This may mean a return is needed
even though one would not otherwise be required.
2. IRS can readjust available unused exclusion amount of first
spouse to die, even though statute of limitations for examining that
estate tax return has expired.
3. GST exemption amounts are not portable.
4. Credit shelter trusts (in lieu of maximizing transfers to
surviving spouse or a marital deduction trust) may still be desirable
at the death of the first spouse to allow for full use of GST
exemption of first spouse, and to protect against estate tax at second
death arising from appreciation in the value of assets.
a) However, credit shelter trusts lose the opportunity for
basis step-up at the death of the surviving spouse.
F. Return to 2001 rules and rates will occur on 1/1/13 (unless
subsequent changes are made by law).
1. Here we go again!
******************************
2. PORTABILITY OF EXEMPTIONS UNDER THE NEW TAX ACT AND OTHER
PROVISIONS
The new estate tax rules introduce a new concept – portability of
exemption amounts. To the extent a spouse does not fully use the new
$5 million exemption during lifetime time and at death, the surviving
spouse can use the unused portion as well as his or her remaining
exemption. One quirk of the new law is that it will require estates of
the first spouse to die to file an estate tax return, even if no taxes
are due by reason of full coverage under the decedent’s exemption
amount, so as to allow portability of the unused exemption to the
surviving spouse. This will provide work to accountants that might
otherwise see a significant diminution in estate tax return work due
to the increased exemptions. Further, the IRS will be able to audit
the return of the first spouse at any time to adjust the remaining
exemption amount, even after the statute of limitations for the
assessment of tax have expired.
In a provision very favorable to taxpayers, the $5 million exemptions
will be indexed for inflation starting in 2012. Of course, the measure
of inflation is the government’s computation, which many believe
significantly understates actual inflation (see www.shadowstats.com).
But a half a loaf is much better than no loaf.
At first blush, it might seem that the new portability rules do away
with the traditional dual arrangement of a by-pass trust and a marital
gift/trust to make use of the first spouse to die’s exemption.
However, there are still reasons to use such arrangements –
principally to help prevent appreciation in assets pushing the family
above the combined $10 million exemption, to allow full use of the
first spouse to die’s $5 million GST exemption, and to allow for the
use of trusts in second marriage situations. However, the use of a by-
pass trust eliminates the ability to get a step-up in basis on the
trust’s assets at the death of the first spouse. Thus, disclaimer
trust arrangements may be the way to go for many first marriage
situations, allowing the decision of whether and how much to fund into
a by-pass trust for the surviving spouse to be made after the death of
the first spouse based on the circumstances at that time.
******************************
3. PROVISIONS OF THE NEW TAX LAW – FOREIGN PROVISIONS
Unlike the transfer tax area, only modest changes were made to the
foreign provisions of the Internal Revenue Code. Continuing our review
of the changes, below is a summary of the new provisions, most of
which relate to temporary extensions of various favorable rules. For
what they are worth (which may be quite a lot to those few taxpayers
that are impacted), here they are:
A. The Subpart F exception for active financing income is
extended. The temporary exclusions will apply to tax years of a
foreign corporation beginning after Dec. 31, 1998 and before Jan. 1,
2012, and to tax years of U.S. shareholders with or within which such
tax years of foreign corporations end.
B. The look-through treatment for payments between related
controlled foreign corporations under the foreign personal holding
company income rules are extended through 2011.
C. The withholding tax exemption for RIC interest-related
dividends and short-term capital gains dividends paid to foreign
persons is extended for tax years beginning in 2010 and 2011. Also,
the inclusion of RICs in the definition of qualified investment entity
is extended for certain FIRPTA purposes through 2011.
D. The IRS authority to reduce withholding rate to 15% on USRPI
gains passed through to foreign persons by U.S. partnerships, trusts
or estates is extended through 2012.
E. Gain recognition expansion for Code §684 for transfers to
nonresident aliens at death and to foreign grantor trusts that were to
apply in 2010 will apply only to the extent the election is made to
not have the estate tax apply.
F. The allowance of Code §199 deduction for Puerto Rico activities
is retroactively extended two years to taxpayer's first six tax years
beginning after 2005.
G. The possessions tax credit for American Samoa is extended
through 2011 for existing claimants.
******************************
4. FIRM ANNOUNCEMENTS
It is with sadness that we note the death of our friend and partner,
Marvin Gutter, this past Friday. Marvin was a highly talented
attorney, did much in our community, and touched the lives of all who
knew him. He will be greatly missed by all of us. Our sympathy and
condolences go out to Calla, Josh, the other members of Marvin’s
family, and all of Marvin’s many friends and acquaintances.
******************************
5. ABOUT OUR FIRM
Our firm seeks to protect and enhance the individual, family and
business wealth of our clients in the following principal practice
areas: Planning to Minimize Taxes (U.S. & International) • Probate &
Trust Litigation • Estate Planning, Charitable, Marital & Succession
Planning • Business Structuring & Transactions • Trusts & Estates
Administration • Tax Controversies • Creditor Protection.
Please visit our website at http://www.floridatax.com for information
about the firm, our attorneys, articles from recent monthly
newsletters, interesting articles and tax guides, and federal and
Florida tax rates and information. The firm and its attorneys have
been recognized in numerous peer rating guides, such as U.S. News &
World Report law firm rankings, Best Lawyers, Martindale-Hubbell,
Chambers, Who's Who in American Law, Florida Trend's Legal Elite,
Superlawyers, and South Florida Legal Guide Top Lawyers.
******************************
DAILY TAX AND BUSINESS UPDATES AVAILABLE. View prior articles, updates
that we didn't have room for in this newsletter, or read the above
postings when they are first published, by visiting http://www.rubinontax.blogspot.com.
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Having problems receiving this newsletter? Make sure that the E-mail
address "cru...@floridatax.com" is marked as a friend or otherwise set
to clear your spam filters! Subscribe and unsubscribe instructions
should be located at the end of this message - if not, send subscribe
and unsubscribe instructions to cru...@floridatax.com. To be properly
processed, unsubscribe instructions need to come from the applicable
email address or send instructions to cru...@floridatax.com with the
specific address being unsubscribed.
Feel free to forward this newsletter on to anyone who you think may be
interested.
-----------------------------------------------
The Usual Disclaimer: This newsletter summarizes for informational
purposes only information of interest to the clients and friends of
Gutter Chaves Josepher Rubin Forman Fleisher P.A. The information is
condensed from, and a general summary of, legislation, court
decisions, administrative rulings and other information, and should
not be construed as legal advice or opinion, and is not a substitute
for the advice of counsel.
Gutter Chaves Josepher Rubin Forman Fleisher P.A.
Boca Corporate Center
2101 Corporate Blvd., Suite 107
Boca Raton, Florida 33431
561.998.7847
www.floridatax.com
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