Family limited partnerships and family limited liability companies are regularly used in estate planning. There are a number of reasons for such use, among the most important of which is obtaining substantial valuation discounts, such as marketability and lack of control discounts, for transfer tax purposes. The federal government has in the last few years mounted an attack on such discounts using Internal Revenue Code (“IRC”) § 2036 as its weapon of choice.
Recent Cases on Section 2036 for Family Limited Partnerships and Limited Liability Companies
Offshore Trust/Offshore LLC Combination
The LP/TRUST PLAN works like this: A U.S. limited partnership is established by the client. The client is designated as the 1% general partner, and the offshore trust established by the client is designated as the 99% limited partner. The client transfers assets into the partnership, and, as the general partner, directly controls and manages those assets. The partnership is required to annually file Form 1065 U.S. Partnership Return of Income.
IRA Exemptions: Has The U.S. Supreme Court Settled The Matter?
On April 4, 2005, the United States Supreme Court handed down its decision in Rousey v. Jacoway, a case addressing the issue of exempting individual retirement accounts (IRAs) from federal bankruptcy proceedings. The decision was widely hailed in the financial press, with such headlines as “High Court Rules IRAs Untouchable – Unanimous Decision Means Retirement Savings Are Protected From Creditors” (Wall Street Journal, April 5, 2005, p. D1). Unfortunately for the public, the headlines did not accurately reflect the underlying story, but this issue of APN will clarify the holding.
Tax Advisor’s Privilege Under IRC § 7525
Before we can understand the tax advisor’s privilege, we must first understand the attorney-client privilege. The attorney-client privilege is naturally of major importance to lawyers, but with the advent of the federal tax practitioner privilege under Internal Revenue Code Section 7525, it has also become of major importance to accountants and enrolled agents because the IRC § 7525 privilege is, to the extent it applies, coextensive with the attorney-client privilege and has the same limitations.
Eleventh Circuit Ruling on the Federal Communications Excise Tax May Mean Refund Opportunities for Businesses
The Internal Revenue Code imposes a 3 percent communications excise tax on certain telephone services; this tax is ordinarily added to your bill by your long distance provider and then remitted to the IRS. The Eleventh Circuit U.S. Court of Appeals in American Bankers Ins. Group v. United States recently held that flatrate long distance service is not subject to the excise tax, contrary to the contentions of the IRS. Although the IRS has stated that taxpayers should continue to pay the excise tax on flat-rate long distance, telecommunications customers in the 11th Circuit (Alabama, Georgia and Florida) may wish to file protective refund claims promptly in order to preserve their rights upon a possible concession by the IRS or an eventual U.S. Supreme Court ruling.
Implementing Sarbanes-Oxley: Learning From Past Mistakes
Sarbanes-Oxley Act, officially titled the Public Company Accounting Reform and Investor Protection Act of 2002, was signed into law on July 30, 2002. The Act is considered the most significant change to federal securities laws in decades. Infamous corporate financial scandals, including Enron, Arthur Andersen, and WorldCom, created the drive for reform. The primary impact of the act on the accounting profession was the shift from self-regulation of auditing standards to rule-setting and review by the Public Company Accounting Oversight Board (PCAOB).On April 13, 2005, the SEC held a roundtable to discuss implementation of the internal control reporting requirements. The PCAOB issued a policy statement on May 16 summarizing their response to the issues discussed at the roundtable.
Revenue Procedure 2005-14: Combine IRC §121 and IRC §1031 to Save Taxes
Until recently, a taxpayer that converted a personal residence to an
investment property or vice versa, had to choose between using IRC
§121 (exclusion of gain on the sale of a principal residence) or IRC
§1031 (non-recognition of gain in like-kind exchange). However, with
the issuance of Revenue Procedure 2005-14 (1/27/2005, corrected 2/3/2005),
taxpayers can combine the benefits of both code sections, as long as the
requirements of both sections can be separately met.
Server Vaults Ride Wave of Heightened Security Demands
To the consumer, it appears that the IT community has totally lost control
of information assets with identity theft issues a daily headline. The
astute IT Manager must deal with this new threat even as executive
management comes to grips with compliance with Sarbanes Oxley Legislation
that severely punishes top management for loss or destruction of media.
Spoliation of media was a frequent occurrence for data processing
operations, but now it is viewed as a criminal offense with prison terms
for managers, fines for the corporation and a loss of prestige and stock
value to further compound the effect of faulty management control.
Better Decision Making Made Possible
Archive storage, as an outsourced process, is a growing option for
companies burdened by government regulatory action and industry
mandates. As more companies turn to external storage options, your
ability to assess risk may mean the difference in winning business or
remaining competitive. Understanding costs, in particular in a
competitive marketplace, can direct which storage solution you should
implement in your facility.
Tax Effect of Charging Orders Against Owners of LPs, LLCs, and LLPs
Limited partnerships, limited liability companies, and limited liability
partnerships are becoming very popular forms of business
organization. One of the main benefits of such forms of organization
is that a judgment against a partner, member, or other owner of an
interest in the organization in most states results only in a charging
order, at least where there is more than one such owner. The result
is generally that the judgment creditor cannot satisfy its judgment
against the company’s underlying assets until distributed to the
owner. However, the tax effects of a charging order are only
beginning to be seen.
