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Estate and Gift Tax

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1. Tax Court foils transferee liability of Reynolds family trusts  

BY Sharon Burnett, CPA, Ph.D. and Darlene Pulliam, CPA, Ph.D.
State law is applied to determine whether a transferee is liable for a transferor’s tax liability.The Tax Court held that four trusts were not required to pay their former personal holding company’s tax liability. Virginia state law does not contain a corollary to the federal substance-over-form doctrine, and federal law has overridden state law only when the underlying transaction was clearly a sham.Facts: In 1961, Davreyn Inc.

2. Final rules on fiduciary fees keep “unbundling” requirement  

BY Sally P. Schreiber, J.D.
Controversial rules prompted by the Knight decision parse certain income tax deductions of estates and trusts.The IRS issued final regulations on the controversial question of which costs incurred by trusts and estates are subject to the 2% floor on miscellaneous itemized deductions under Sec. 67(a). The regulations apply to tax years beginning on or after May 9, 2014.

3. Avoiding the squeeze: Trusts, estates, and the new ATRA tax regime   CPEDirect

BY Robert S. Barnett, Esq., CPA, and Elizabeth Forspan, Esq.
Trusts and estates are recognized as separate taxable entities for federal income tax purposes. The estate or trust must file a return on Form 1041, U.S. Income Tax Return for Estates and Trusts, on or before the 15th day of the fourth month following the close of the tax year if it has gross income of $600 or more.

4. Decanting trusts  

BY Alistair M. Nevius
Sometimes after clients create an irrevocable trust, circumstances change and the trust needs to be amended to reflect those changes. Sometimes these changes are related to family events, such as the marriage, divorce, or even death of the beneficiary; sometimes the client wants a new fiduciary or to have the trust resident in a state with more favorable laws.Traditionally, depending on how the trust was drafted, clients may have been stuck with the irrevocable decisions made when the trust was created.

5. Duty of consistency thwarts inheritors’ basis step-up  

BY Charles J. Reichert, CPA
The Tax Court held that the duty-of-consistency doctrine prevented two taxpayers from using fair market value (FMV) as the basis of inherited property where the estate had previously valued the property using the special valuation election of Sec. 2032A. The value of property included in a decedent’s estate is its FMV, determined on the basis of its highest and best use.

6. Tax Court allows discount of gift value for assumption of estate taxes   CPEDirect

BY David W. Clark, CPA and Darlene Pulliam, CPA, Ph.D.
The Tax Court held that a gift’s fair market value (FMV) may be determined with reference to the recipient’s assumption of the potential Sec. 2035(b) estate tax liability, abandoning its precedent from McCord, 120 T.C. 358 (2003).Jean Steinberg, who was 89, entered into a binding agreement with her four adult daughters to make gifts of cash and securities to them.

7. Is a remittance a deposit or a payment?  

BY Charles J. Reichert, CPA
A district court held that an estate’s remittance to the IRS was a tax payment rather than a deposit. It denied the estate’s refund request because it occurred after the three-year recovery period had expired. Generally, a taxpayer must request a refund of a tax overpayment within three years from the date the return was filed or two years from the date the tax was paid, whichever occurs later.

8. Supreme Court strikes down Defense of Marriage Act in estate tax case  

BY Alistair Nevius, J.D. and Sally P. Schreiber, J.D.
The Supreme Court, in a 5–4 decision written by Justice Anthony Kennedy, ruled that the Defense of Marriage Act (DOMA), P.L. 104-199, is unconstitutional because it violates the Fifth Amendment’s Due Process Clause by denying equal protection to same-sex couples who are lawfully married in their states (Windsor, No.

9. File now or file later  

BY Charles J. Reichert, CPA
The U.S. District Court for the District of Massachusetts held that an estate was liable for a late filing penalty since its reliance on an accountant’s advice to file a late estate tax return rather than a timely estimated return was not reasonable cause for filing the return after the due date.

10. Don't neglect to elect, part 4  

BY C. Andrew Lafond, CPA, DBA and Jeffrey J. Schrader, CPA, MST
As a fourth installment in an occasional series, here are additional tax elections for estates, partnerships, and individuals. ESTATES Election to treat a revocable trust as part of an estate. Sec. 645 allows for an election to treat a qualified revocable trust (QRT) as part of a decedent’s estate for federal income tax purposes.
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