Federal Estate Tax Planning for Same Sex Couples
Physician Tax Update Series – Sale of Personal Goodwill by Michael O’Leary
New Belize Regulations
Thursday Report Humor
Seminar and Webinar Announcement – The Annual Florida Bar Wealth Protection Conference, May 8, 2014 in Miami, Florida
We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.
This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.
University of Florida Tax Institute Webinar
Last Monday, January 27, 2014 Alan Gassman interviewed Professor Michael Friel, Professor Dennis Calfee, and Bruce Bokor, Esq. to find out about the University of Florida Tax Institute, which will be held Wednesday through Friday, February 19-21, 2014 at the Grand Hyatt in Tampa.
Please at least come by and say hello to your favorite tax professors (and visit our booth to win a bucket of Kentucky Fried Chicken) if you are in Tampa.
To view the webinar click here.
To get a copy of the schedule for this excellent program, click here. Please remember that you can buy a day pass and attend cocktail and breakfast events as well.
Federal Estate Tax Planning for Same Sex Couples
By: Alan S. Gassman, Esq. and Danielle Creech, Esq.
We were pleased to participate in a conference on same sex couple planning sponsored by the Pinellas County Chapter of the Florida Association for Women Lawyers at Stetson Law School.
We will be sharing our materials in the next few editions of the Thursday Report.
Our section on federal estate and gift tax and generation skipping tax planning for same sex couples was written for non-tax lawyers. Please feel free to share this with anyone who wants to know what differences apply.
We thank Henry Lee, Esquire of the Howard and Howard law firm in Detroit, Danielle Creech, Esq., and also Kylie Caporuscio, Esq., and India Ingram, J.D. for their work on our outline.
FEDERAL ESTATE TAX PLANNING
For more affluent married couples federal income, estate and gift tax planning will provide the most important financial differences when a couple decides whether or not to be married.
Internal Revenue Service Ruling 2013-17
On August 29, 2013, the IRS ruled that same sex couples will be considered as married for federal income, estate and gift tax purposes, for 2013 filings and for amending past returns based upon the normal amendment statute of limitations that prevents any change for tax years Any same sex marriage legally entered into in one of the 16 states that allow same sex marriages, the District of Columbia, or a foreign jurisdiction having legal authority to sanction same sex marriages is covered under this ruling, without regard to whether one or both spouses live in a state or other jurisdiction that recognizes their marriage.
The IRS pronouncement in Revenue Ruling 2013-17 indicated that individuals who have entered into alternative relationships to marriage, such as domestic partnerships, civil unions, and other non-marriage state or foreign country relationships will not be considered as married for federal income tax purposes. The ruling provides that as of September 16, 2013, all qualified retirement plans are required to recognize same sex spouses for purposes of spousal inheritance rights and spousal rollover benefits.
Internal Revenue Service Ruling 2013-17
Since estate tax exclusion portability became available to taxpayers in 2011, the personal representative of the first dying spouse’s estate needed to file a Form 706 (the estate tax return) after the death of the first dying spouse in order to appropriately make the portability election for the surviving spouse. This Form 706 needed to be filed within nine (9) months following the date of death of the first dying spouse, unless the personal representative filed for and was granted an automatic six (6) month extension to this deadline.
However, a great number of personal representatives and surviving spouses were not aware of this deadline or otherwise did not file the Form 706 in order to take advantage of any unused estate tax exclusion amount that remained at the death of the first dying spouse.
The IRS recently issued Revenue Procedure 2014-18, which provides for an extension of time for the personal representative of the first dying spouse to file a Form 706 with respect to the first dying spouse’s estate for the sole purpose of electing portability. This Rev. Proc. generally allows the personal representative until December 31, 2014 to file a Form 706 for the first dying spouse’s estate if the first dying spouse died after December 31, 2010 and on or before December 31, 2013, and if no estate tax return was required to be filed for the first dying spouse because the first dying spouse died with assets with a value less than their estate tax exclusion amount.
Under Rev. Proc. 2014-18, the taxpayer is entitled to relief under Treasury Regulation §301.9100-3, which allows the personal representative to file a Form 706 for the first dying spouse in order to take advantage of such spouse’s unused estate tax exclusion amount. This Rev. Proc. only applies if the taxpayer is the personal representative of the estate of a decedent who (1) has a surviving spouse; (2) died after December 31, 2010 and on or before December 31, 2013; and (3) was a citizen or resident of the United States on the date of death. Further, this Rev. Proc. only applies if the personal representative is not required to file an estate tax return because the first dying spouse’s assets were less than his or her estate tax exclusion amount upon his or her death or if the taxpayer did not timely file an estate tax return to elect portability.
When filing Forms 706 pursuant to this Rev. Proc., the Form 706 must be complete and properly prepared in accordance with Treasury Regulation §20.2010-2T(a)(7) (i.e., it must be prepared in accordance with the instructions to the Form 706), and it must be filed on or before December 31, 2014. Additionally, the following language must be included at the top of the Form 706 in capital letters: “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER §2010(c)(5)(A)”.
If the above requirements are satisfied, then the personal representative will be considered to have timely filed the Form 706 to elect for portability to apply, and the personal representative will receive an estate tax closing letter acknowledging receipt of the decedent’s Form 706.
The impetus for this Rev. Proc. is the recent Supreme Court case of United States v. Windsor, in which the Supreme Court struck down Section 3 of the Defensive of Marriage Act to provide that a law defining “marriage” as a legal union between one man and one woman as unconstitutional. After the Windsor decision, the IRS released Revenue Ruling 2013-17 to provide the IRS’ interpretation of the Internal Revenue Code vis-a-vis taxpayers’ marital status in light of the Windsor decision. This revenue ruling held that for federal tax purposes the terms “spouse,” “husband and wife,” “husband,” and “wife,” include an individual married to a person of the same sex if the individuals were lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex.
Rev. Proc. 2014-18 provides a good analysis of the legal effect of Windsor and Revenue Ruling 2013-17 on the tax law, and indicates that this Rev. Proc. is significantly based upon the outcome in the Windsor decision and the IRS’ interpretation of the Internal Revenue Code as a result thereof.
Nevertheless, the benefits afforded by this Rev. Proc. are available to provide relief for late portability elections for opposite sex surviving spouses, as well as same sex surviving spouses.
This Rev. Proc. did not address the situation where a surviving spouse has previously filed a Form 706 late, and the Form 706 was not accepted for the purposes of electing portability due to the late filing. It seems that in this case the surviving spouse would simply need to re-file the Form 706 (assuming that it was properly completed and appropriately prepared) with the magic capitalized words on top of the first page in order to take advantage of this other relief provided by this Rev. Proc.
Therefore, for some personal representatives and surviving spouses who neglected to timely file a Form 706 to take advantage of portability, Rev. Proc. 2014-18 provides a second chance.
Amending Prior Tax Returns
Revenue Ruling 2013-17 notes that under Internal Revenue Code Section 6511 same sex married couples have the option of amending their prior tax returns by going back to the earlier of (a) three years from the time the return was filed or (b) two years from the time the tax was paid, whichever is later. Same sex couples may also choose to leave the prior returns intact and not amend one or more prior tax years.
This gives same sex couples some very good choices for income tax planning purposes, but we expect that there will be legislation and/or litigation that will determine whether returns going back farther than the normal limits described above will be amendable. Many same sex clients feel that it is blatantly unfair that they paid more tax then they should have and are unable to amend further back than three years, while others feel that it is very fair that they get the best of both worlds, for they can either amend or not amend. We expect additional political jockeying and possible litigation over whether the equal protection clause is violated if same sex couples are not allow to amend back as many years as they would like.
Any gift tax return that involved a transfer to a spouse that used up any portion of the donor spouse’s estate tax exemption should probably be amended to regain the exemption amount, unless there are other items on the gift tax return that are best not re-opened, such as large gifts with questionable values to non-spouse individuals, because amending a gift tax return gives the IRS three years after the date of the amendment to revisit all aspects of the gift tax return amended. We may see possible legislation changing this as well. Could people be denied a tax right and be punished by undergoing increased audit risk as the result of amending returns to get moneys or allowances back that they would have been entitled to as a matter of federal law in the first place?
Almost all affluent married same sex couples (or couples where one spouse is affluent) will want to go to an experienced income tax advisor with the right software, to help determine what years they should amend and what years they should not amend.
Estate and Gift Tax Advantages of Marriage
Before the IRS issued Revenue Ruling 2013-17, a same sex couple would not receive full married couple benefits under the estate and gift tax and income tax laws unless they were (1) married in a state that recognized same sex marriages and (2) resided in a state that also recognizes same sex marriages.
Before this decision we published an article entitled “Why Many Affluent Same-Sex Couples Will Be Leaving Florida and Where They Should Go”. Fortunately, the landscape changed quickly in the right direction.
As the result of Revenue Ruling 2013-17, couples can marry in any of the jurisdictions discussed above which authorize this and have full federal tax law benefits (and the benefit of having no state income tax or inheritance taxes) in states that do not recognize same sex marriages.
Individuals in same sex relationships who expect to be subject to federal estate taxes will want to consider several significant advantages that marriage brings:
1. The estate tax exemption is presently $5,340,000, and will increase with the Consumer Price Index (CPI), which generally runs 0.5-1% under the inflation rate.
If the value of investments will double every 10 years, as it has in the past for many taxpayers, then a great number of Americans will be subject to federal estate tax in years to come.
2. Any gift exceeding $14,000 per year, per person results in the requirement to file a gift tax return, and reduces the applicable allowance on a dollar for dollar basis.
3. One spouse can make a large gift and have it be considered to come one-half from the other spouse, if the other spouse will sign a “split-gift” consent return. Therefore, a wealthy spouse can make a large gift to descendants and have it be considered to come from the less wealthy spouse, to in effect use his or her exemption.
4. Gifts or amounts left upon death to a non-spouse can trigger gift tax or estate tax when the exemption has been used. The tax rate is 40%.
There is an estate tax marital deduction for assets that pass directly to a surviving spouse, or into a special trust that is required to pay all income to the surviving spouse for his or her lifetime.
5. There is also a portability allowance that allows a surviving spouse to add the unused exemption allowance of a deceased spouse to his or her own, if certain requirements are met. These requirements are that (1) the estate of the first dying spouse files an estate tax return permitting the portability allowance to exist, (2) the allowance is limited to the amount of estate and gift tax exemption not used by the first dying spouse, (3) the surviving spouse will lose the portability allowance if he or she remarries, and then if the next spouse dies first and leaves no exemption or a smaller exemption.
It is important to note that the portability amount does not grow with the Consumer Price Index, and it is therefore often much better to fund a “credit shelter trust” for the surviving spouse that can benefit him or her without being subject to federal estate tax on death, notwithstanding that the trust can grow significantly during the lifetime of the surviving spouse.
6. Marital Deduction and QTIP Trust
Estate and Gift Tax Hypotheticals
The several different primary tax differences that will occur for same sex married couples could perhaps be best explained by the following hypothetical:
George has a net worth of $15,000,000, and his partner, Sam, has no assets other than significant retirement benefits that he uses to pay his expenses.
George would like to leave $5,000,000 to Sam and $10,000,000 to his (George’s) children, but would also like to avoid federal estate tax.
Assume that George has a $5,000,000 estate tax exemption (even though the exemption increases with the consumer price index each year and is presently $5,340,000 in 2014 – We are sparing the reader the complexity of using that uneven number).
If George dies without being married, then his estate tax would be 40% of $10,000,000, which is $4,000,000.
If George marries Sam and then dies, there will be a $5,000,000 marital deduction for what goes to Sam. Thus, instead of George’s taxable estate being $15,000,000, it will only be $10,000,000. George’s estate tax will be $4,000,000, a savings of $2,000,000 (40% of $5,000,000).
If George marries Sam, and makes a gift of $4,000,000 to a trust for his children (that George might be a potential beneficiary of if the trust is established in an asset protection state like Nevada, Delaware, or Alaska), and Sam signs a split-gift return, then the gift will be considered to have come $2,000,000 from Sam and $2,000,000 from George. Under this circumstance, George’s estate tax allowance would be reduced to $3,000,000 but he has gotten $4,000,000 plus the future growth thereon out of his estate.
When George then dies, leaving $5,000,000 to Sam, and his remaining $6,000,000 to his children, there would be an estate tax of only $1,200,000, so the gift with Sam’s help saves $800,000 in estate tax. ($11,000,000 -$5,000,000 = $6,000,000. $6,000,000 – his $3,000,000 exemption = $3,000,000. $3,000,000 x 40% is $1,200,000. But $6,000,000 – his $1,000,000 exemption if no split gift with Sam = $5,000,000 x 40% = $2,000,000).
If George’s gift to the special trust had been $10,000,000, then there would be no estate tax in our example because Sam and George would have each used their $5,000,000 allowances and what goes from George to Sam on George’s death passes estate tax free.
In addition to the above, George can only gift $14,000 to each child per year while unmarried without reduction of his $5,000,000 exemption.. If George and Sam are married, and George has two children, they could gift a total of $56,000 a year. These gifts would reduce neither George’s nor Sam’s lifetime exemption amounts.
This can help keep future growth in George’s assets outside the reach of the estate tax system.
Second Example of Lifetime Gifting
Suppose that instead George has a $10,600,000 estate, and that the exemption amount has increased with the CPI to $5,600,000 and will continue to go with the CPI as it does under present law.
Assume that George is now satisfied with leaving the children $5,600,000, and would like the remaining $5,000,000 to be held for Sam’s lifetime benefit.
George can die, leaving the children $5,600,000, and leaving $5,000,000 in a trust to benefit Sam for his lifetime benefit without being subject to federal estate tax on Sam’s death. This trust is called a QTIP trust and can qualify for the estate tax marital deduction on George’s death if it pays all income to Sam.
On Sam’s subsequent death, there will be no estate tax unless the combined value of the assets he owns on death, and the assets in the marital deduction trust at the time of his death exceeds Sam’s remaining estate tax exemption amount. If Sam dies a few years after George then it is very likely that George’s children will be very glad that this happened, because instead of paying $2,000,000 of estate tax on the $5,000,000 they lose out on getting the income for a few years, but there may be no federal estate tax liability on Sam’s estate.
Based on the above and, of course, their love, George sees it as an absolute no-brainer to marry Sam, but only after Sam signs a domestic partnership agreement.
While this law is still untested, it appears as though a domestic partnership agreement will be binding on a same sex couple regardless of whether their state of residence currently recognizes same-sex marriage. This is discussed in more detail below.
What if Sam dies before George and they are married?
Then, if Sam’s will permits this and he has no assets, or all of his assets go to charity, George can have whatever is left of Sam’s $5,340,000 estate tax exemption (if Sam dies in 2014) added to George’s to reduce George’s estate tax by 40% of $5,340,000 on his eventual death ($2,316,000). Wow, George should find someone about to die soon and marry them for this reason alone! Yes, this is happening throughout the US.
Alternatively, whether or not George and Sam are married, George can give Sam a special power to appoint up to the amount of Sam’s estate tax exemption from assets held under George’s revocable trust to a trust that can benefit George and his children and not be subject to estate tax on George’s death. This way George could have effective use of Sam’s unused exemption without marrying Sam. This technique is not 100% guaranteed to work, but has been approved by IRS Private Letter rulings granted to individual taxpayers and commented upon favorably by a number of estate tax planning authorities.
Generation Skipping Tax Implications
The federal generation skipping tax system prevents more than a certain amount of assets being held to benefit a donor’s children without being taxed at their demise.
For example, if George has a $20,000,000 estate and wishes to leave everything to his descendants, he would be able to have $5,340,000 pass into a trust in 2014 that would benefit his children without being taxed at their level (or go directly to the grandchildren), but anything above that would have to be subject to federal generation skipping tax, which is a 40% tax imposed in addition to the estate tax.
If George marries Sam and Sam has nominal assets, then in 2014 George could leave $5,600,000 worth of assets to a trust for his children that will not be subject to estate tax or generation skipping tax when each child dies, and the remaining $14,600,000 to a QTIP marital deduction trust (like the one described above) that would pay income to Sam, and would not only have the use of whatever remains of Sam’s $5,340,000 (plus increases for future CPI adjustments) for estate tax purposes, but also for generation skipping tax exemption purposes.
Therefore, if Sam dies 10 years later and the $14,600,000 worth of assets that were generating the income for Sam are then worth $15,000,000, and assuming that Sam’s other assets do not exceed $5,340,000 in value (or higher based upon CPI increases after 2014), George’s grandchildren will pay no estate tax or generation skipping tax on the death of their parents.
Alternatively, George could make a $5,000,000 gift to a trust for children, and if Sam allows the gift to be considered as having come ½ through him by filing a split gift consent on a gift tax return, then George will have only used $2,500,000 of his estate tax and generation skipping tax exemptions. If George later divorces Sam and leaves these assets into a trust system for his descendants, the estate tax and generation skipping tax savings will be based upon the tax rates multiplied by whatever the $2,500,000 grows into before George’s death.
The Mike O’Leary Physician Tax Update Series – Sale of Personal Goodwill
Attorney Michael O’Leary of the Trenam Kemker firm in Tampa, Florida recently lectured on hot tax topics for physicians and physician practices. The following is his section on the sale of personal goodwill. His contact information is as follows:D. Michael O’Leary Trenam Kemker 101 E. Kennedy Blvd, Suite 2700 Tampa, FL 33602 813-227-7454 email@example.com
A. Overview. When a business is sold, buyers typically wish to acquire assets because (i) it generates higher tax benefits and (ii) avoids possibly being liable for debts of the seller. For example, assume a corporation has a valuable patient list and other goodwill worth $5,000,000, but with a tax basis of zero, plus tangible assets worth $100,000 and with a basis of$100,000. If a buyer pays $5,100,000 for the stock of the business, it takes over the business with no step up in basis of the assets (they continue to be a total of $100,000). However, if the buyer pays $5,100,000 for the assets of the business, then the buyer acquires goodwill with a basis of $5,000,000 (and tangible assets with a basis of $100,000). The buyer can amortize the $5,000,000 of goodwill over 15 years and obtain substantial tax benefits (assuming a marginal tax rate of 30%, the tax benefits would be worth $1,500,000 ($5,000,000 multiplied by 30%).
If the seller is a C corporation, the tax generated by the sale of assets is substantial. In the above example, the C corporation would pay federal corporate level taxes of $1,700,000 ($5,000,000 multiplied by 34%) plus state corporate level taxes of $275,000 ($5,000,000 multiplied by 5.5%). In addition, the remaining assets of $3,125,000 ($5,100,000 less $1,700,000 less $275,000) distributed to the shareholders would generate additional tax at a 23.8% rate, or $743,750 ($3,125,000 multiplied by 23.8%), assuming that the basis of the stock is zero. Accordingly, the total taxes would be $2,718,750 ($1,700,000 plus $275,000 plus $743,750).
B. S corporations. If a corporation has been an S corporation since its organization, then profit from the sale of assets passes through to the shareholders and there are no corporate level taxes. However, if the corporation has been a C Corporation and subsequently makes an S election, then the “built in gain” at the time of the S election is subject to corporate level taxes at the highest corporate level rate, currently 35%. In general, 10 years after the S election, there is no built in gain. However, for 2009 and 2010, the 10 year period was shortened to 7 years and for 2011, the 10 year period was shortened to 5 years.
Example. If a C corporation makes an S election effective January 1, 2009, when the value of its goodwill is $5,000,000, but then sells the goodwill, as well as the rest of its assets in 2012, when its goodwill has a fair market value of $15,000,000, then the “built in gain” subject to double tax is $5,000,000 and the balance of the gain from the sale of goodwill ($10,000,000) is not subject to corporate level taxes.
C. Issue: Can the substantial taxes due upon the sale of assets in a C corporation or an S corporation with substantial “built in gain” be minimized?
D. Martin Ice Cream. In Martin Ice Cream Co., 110 T.C. 189 (1998), an individual, Arnold Strassberg (“AS”), had never entered into a covenant not to compete or even an employment agreement with a corporation, and the Tax Court held that the customer relationships of AS were a personal asset “entirely distinct from the intangible corporate asset of corporate goodwill.”
E. Howard. In Howard, No. 2:08-cv-00365 (E.D. Wash. 7/30/10), the court held that goodwill was an asset of dissolving corporation, not of its individual sole shareholder, officer, and director, who worked for corporation under contract and with covenant not to compete.
F. Kennedy. In Kennedy,.T.C. Memo 2010-206 (2010), the owner of a corporation, Mr. Kennedy, again had not entered into a covenant not to compete or an employment agreement with the corporation. Mr. Kennedy’s corporation was a C corporation and based on some tax advice after the deal terms had been agreed to, the parties (Mr. Kennedy and the buyer, Mack & Parker) agreed to allocate 75% of the purchase price to the sale of Mr. Kennedy’s personal goodwill and 25% to a consulting agreement between the buyer and Mr. Kennedy’s C corporation.
The Tax Court agreed with Mr. Kennedy that the C corporation owned by Mr. Kennedy did not sell any intangible assets. However, the court focused on the tax treatment of the payments received by Mr. Kennedy, and held that a purported sale of goodwill by Mr. Kennedy must be treated as ordinary income subject to self employment taxes. The Tax Court’s decision was based on various factors, including that (i) the allocation of 75% of the purchase price to personal goodwill was not grounded in any business reality, (ii) Mr. Kennedy “undertook to work for Mack & Parker for five years until his planned retirement date of December 31, 2005,” (iii) Mr. Kennedy entered into a valuable noncompete agreement and (iv) Mr. Kennedy received virtually no compensation for his services for 18 months after the sale. However, the court made it clear that personal goodwill can exist but is a question of fact in each case.
G. H&M, Inc. T.C. Memo 2010-206 (2010), H&M, Inc. sold its insurance brokerage business to a local bank $20,000. The shareholder of H&M (Harold Schmeets) received a compensation package of $600,000 over 6 years. IRS said $300,000 of payments to Mr. Schmeets were disguised purchase price payments to H&M, Inc. The court looked at personal relationships of Mr. Schmeets, experience in running the insurance agency and said compensation was reasonable.
Court recognized the personal goodwill of Mr. Schmeets and said
“Though we think it is clear that some part of his compensation wasn’t for his services, it’s not necessary for us to determine the exact allocation between what he was paid for his services to the agency, his personal goodwill and his promise not to compete, since Schmeets income tax liability is not before us.”
Essentially court concluded that transaction had economic substance and not tax motivated.
H. Proposed Approach. Based on Kennedy and Martin Ice Cream, if a shareholder/employee has not signed a noncompete with their own company, it does not appear that failure to allocate some of the purchase price to corporate goodwill should be a major concern (unless the parties really believe that there is corporate goodwill separate and apart from their own personal goodwill). Instead, based on Kennedy, the primary concern appears to be the IRS recharacterizing the payments to the shareholders from capital gain to either compensation or payments for entering into a noncompete agreement.
In the treatise, “Mergers, Acquisitions and Buyouts” by Ginsburg, Levin and Rocap, the authors assert that “it should be permissible for the parties to allocate no portion of the purchase price to a non-compete covenant entered into in connection with a sale of personal goodwill on the grounds that the non-compete covenant is incidental to, and protective of, the goodwill, although it is not permissible to allocate an unreasonably small amount to a consulting arrangement. “
Accordingly, if (i) a selling shareholder will be fairly compensated for any services the selling shareholder will provide to the buyer after the sale, (ii) there is no covenant not to compete with the selling shareholder’s corporation, and (iii) the allocation of consideration to personal goodwill is based on economic reality that can be supported, there should be a reasonable basis to treat the payments for personal goodwill as qualifying for capital gain treatment.
Note that even if the IRS successfully asserts that a portion of the proceeds are allocable to a covenant not to compete, those proceeds are taxed move favorably than amounts allocated to corporate goodwill (approximately 54% combined rate if taxed to the corporation versus maximum 39.6% rate). Based on Barrett v. Comr., 58 T.C. 284 (1972), payments made pursuant to a covenant not to compete are not subject to employment taxes.
I. Summary (where there is a C corporation or S corporation with significant built in gain and shareholder/employees don’t have a covenant not to compete).
1. Don’t allocate any of the sales consideration to corporate goodwill unless the parties believe that there really is corporate goodwill (don’t make a random allocation of the purchase price to corporate goodwill).
2. Make sure that the shareholder/employees are paid reasonable compensation for their services after the closing.
3. Allocate consideration to a shareholder’s personal goodwill based on economic reality, which should be supportable.
We thank Michael O’Leary for this contribution. Next week we will provide his write-up on tax relief from misclassification of workers. If you have ever felt misclassified make sure that you read next week’s Thursday Report.
New Belize Regulations
Belize has always been one of our favorite jurisdiction for off shore trusts, because of the efficiency and effectiveness demonstrated by the people of Belize, not to mention a very good trust law. We thank Tina Arvin of our office for preparing the following.
New accounting regulations in Belize took effect on October 12, 2013. The regulations stipulate that accounting/financial records for Belize entities must be maintained and must be accessible at a designated location. A copy of the Belize Accounting Records (Maintenance) Act 2013 can be viewed by clicking here.
In summary, the Act requires that financial records (further defined as “financial statements; general and subsidiary ledgers; sales slips; contracts and invoices; and records and documents relating to assets and liabilities, all sums of money received and expended and the matters in respect of which the receipt and expenditure take place, all sales and purchase, and all financial transactions”) are kept in one of the following locations:
1. In Belize, at the office of the entity’s Registered Agent; or
2. Outside of Belize, at a designated location to be provided to such Registered Agent by written resolution. Such resolution should include language authorizing such Belize Registered Agent to request up to five (5) years of financial records at any time and that such financial records will be provided to the Registered Agent within one (1) business day of receipt of such request.
Clients with offshore trusts where a Belize company serves as Trustee or Co-Trustee are also required to comply with the new accounting regulations. We have developed a Written Resolution (click here to view) that can be completed by clients and provided to the Belize Trust, Co-Trustee or Registered Agent allowing the client to maintain financial and accounting records at his or her home, office or CPA’s office.
Failure to satisfy the above requirements will constitute professional misconduct on the part of the Belize Registered Agent, punishable by suspension or revocation of license and/or imposition of a fine.
Clients are strongly encouraged to provide the requested documentation to Belize Registered Agents as soon as possible to ensure the continuation of a favorable professional relationship.
Thursday Report Humor
Colonel Sanders is on his death bed and has one final wish. So he calls up the Pope and says, “Pope, I’ll donate a million dollars to the Church if you do me a favor.” The Pope asks what it is.
The Colonel says, “You know the Lord’s Prayer? The line that says: ‘Give us this day our daily bread?’ I want you to change that to ‘Give us this day our daily chicken.'”
The Pope thinks for a minute, because after all, it is a million dollars! But then says no.
The next day, Colonel Sanders calls back and says, “I’ll up my offer. I’ll donate one hundred million dollars if you change the line to ‘Give us this day our daily chicken.'”
The next day, an announcement goes out to all the Cardinals and Bishops all over the world. It reads “I have good news and bad news. The good news is that we just got a one hundred million dollar donation. The bad news is we just lost the Wonder Bread account.”
Seminar and Webinar Announcements:
The Florida Bar Annual Wealth Protection Conference, May 8, 2014 in Miami, Florida
Please note that the annual Wealth Protection conference will be held in Miami, Florida on May 8 at the Hyatt Regency Downtown, and will feature nationally known speakers and authors Barry Engle, Jay Adkisson and Howard Fisher along with well respected and practical Florida based speakers.
We are particularly looking forward to an ethics and practice development panel discussion entitled “ What are the Ethical, Legal and Administrative Liability Exposures in Wealth Protection Planning and How Do We Protect Ourselves” that will feature Barry Engle, Professor Jerome Hesch, Denis Kleinfeld and Alan Gassman.
Jerry Hesch will be presenting his ever improving materials on Income and Estate Tax Issues for 2014.
Please give this conference a try if you have never attended. The interaction, synergism and information derived from the lectures and from other attendees is always dynamic.
For more information on this seminar please contact Alan Gassman at firstname.lastname@example.org.
Applicable Federal Rates
Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.
SHORT TERM AFRs
MID TERM AFRs
LONG TERM AFRs
Seminars and Webinars
INDIVIDUAL AND GROUP MEDICAL PRACTICES BLOOMBERG BNA WEBINAR
Health care attorney Lester Perling, Pension Actuary Jim Feutz and Alan Gassman will be presenting a 90 minute webinar for Bloomberg BNA Tax and Accounting on Individual and Group Medical Practices.
Date: February 13, 2014 | 12:00 – 1:30 p.m. (90 Minutes)
Location: Online webinar
Additional Information: Please contact email@example.com for more information.
THE JEST, THE SCGRAT AND THE E STREET SOFTWARE
Please join Alan Gassman, Ken Crotty and Chris Denicolo for a 30 minute webinar describing 2 new planning techniques and also free beta testing of the EstateView software that was developed by Gassman, Crotty & Denicolo, P.A.
Date: Tuesday, February 18, 2014 | 5:00 p.m.
Location: Online webinar
Additional Information: To register for the webinar please visit https://www2.gotomeeting.com/register/625212018.
THE 444 SHOW – CREDITOR PROTECTION UPDATE
Date: Thursday, February 27, 2014 | 4:00 p.m.
Location: Online webinar.
Speaker: Alan Gassman
Additional Information: To register for the webinar please visit www.clearwaterbar.org
LUNCH TALK – LAWYER REFERRAL SERVICE
Date: Monday, March 3, 2014 | 12:30 p.m.
Location: Online webinar
Speaker: David Robert Ellis, Esq.
Additional Information:To register for the webinar please visit www.clearwaterbar.org
FLORIDA BAR HEALTH LAW REVIEW 2014
Alan Gassman will be speaking on What Healthcare Lawyers Need to Know About Tax Law and Business Entities at this excellent annual Florida Bar conference that is attended not only by those who are taking the Board Certification exam but also healthcare lawyers and other advisors.
Other speakers will include Lester Perling who is the co-author of A Practical Guide to Kickback and Self-Referral Laws for Florida Physicians and a number of other books and publications, and Mickey Mouse, Donald Duck and the “dwarf planet” formerly known as Pluto!
Date: March 7 – 8, 2014
Location: Hyatt, Orlando, Florida
Additional Information: We thank Jodi Laurence and Sandra Greenblatt for all of their hard work in making this conference as successful as it is. For more information please contact Jodi at firstname.lastname@example.org or Sandra at email@example.com.
HILLSBOROUGH COUNTY BAR ASSOCIATION HEALTH LAW SECTION LUNCHEON
Alan Gassman and Christopher Denicolo will be speaking at the Hillsborough County Bar Association’s Health Law Section Luncheon on the topic of Tax and Asset Protection Basics for Those Who Represent Physicians and Medical Practices.
Date: March 12, 2014
Location: Chester H. Ferguson Law Center in Tampa, FL
LUNCH TALK – LAW PRACTICE EFFICIENCY TIPS
Date: Monday, April 7, 2014 | 12:30 p.m.
Location: Online webinar
Speaker: Alan S. Gassman
Additional Information: To register for this webinar please visit www.clearwaterbar.org
FICPA SUNCOAST CHAPTER MONTHLY MEETING
Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on the topic of THE FLORIDA CPA’S GUIDE TO PLANNING WITH PHYSICIANS AND MEDICAL PRACTICES
Date: Thursday, April 17, 2014 | 4:00 p.m.
Location: Tampa, Florida
DONOR LUNCHEON AT RUTH ECKERD HALL WITH PROFESSOR JERRY HESCH IN CLEARWATER, FLORIDA
Professor Jerry Hesch will be speaking at a Donor Luncheon on the topic of CHARITABLE TAX SAVINGS: HOW TO MAKE SURE THAT UNCLE SAM CONTRIBUTES HIS SHARE TO MAXIMIZE RESULTS
Date: Tuesday, April 22, 2014 | TIME TO BE DETERMINED
Location: Ruth Eckerd Hall, Clearwater, Florida
RUTH ECKERD HALL PLANNED GIVING MEETING
Professor Jerry Hesch will be speaking at the Ruth Eckerd Hall Planned Giving Meeting in Clearwater, Florida on the topic of INNOVATIVE CHARITABLE GIVING TECHNIQUES FOR THE WELL TUNED ESTATE PLANNER
Date: Tuesday, April 22, 2014 | 4:00 p.m.
Location: Ruth Eckerd Hall, Clearwater, Florida
Additional Information: This session qualifies for 1 hour of continuing education creditor for lawyers and CPA’s. To attend please email Suzanne Ruley at firstname.lastname@example.org or Alan Gassman at email@example.com
1st ANNUAL ESTATE PLANNER’S DAY AT AVE MARIA SCHOOL OF LAW
Speakers: Speakers will include Professor Jerry Hesch, Jonathan Gopman, Alan Gassman and others.
Date: April 25, 2014
Location: Ave Maria School of Law, Naples, Florida
Sponsors: AveMariaSchool of Law, Collier County Estate Planning Council and more to be announced.
Additional Information: For more information on this event please contact firstname.lastname@example.org.
THE FLORIDA BAR ANNUAL WEALTH PROTECTION SEMINAR
Date: Thursday, May 8, 2014
Speakers: Speakers will include Barry Engel on Offshore Trust Planning and Developments Over the Past 2 Years in Asset Protection, Howard Fisher and Alex Fisher on “Designer Entities – The Cutting Edge in Asset Protection”, Denis Kleinfeld on The Roadmap to Wealth Protection Planning and Alan Gassman on Structuring Business and Investment Assets and Entities – Wealth Protection 401 for the Dedicated Planner.
Location: Hyatt Regency Downtown, Miami, Florida
Additional Information: For more information please contact email@example.com
40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE
Date: November 13 and 14, 2014
Location: Century Center, South Bend, Indiana
Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.” As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future. Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have. For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams. As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death. The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.
NOTABLE SEMINARS PRESENTED BY OTHERS:
16th ANNUAL ALL CHILDREN’S HOSPITAL ESTATE, TAX, LEGAL & FINANCIAL PLANNING SEMINAR
Date: Wednesday, February 12, 2014
Location: All Children’s Hospital Education and ConferenceCenter, St. Petersburg, Florida with remote location live interactive viewings in Tampa, Sarasota, New Port Richey, Lakeland, and Bangkok, Thailand
Sponsor: All Children’s Hospital
THE UNIVERSITY OF FLORIDA TAX INSTITUTE
Date: February 19 – 21, 2014
Location: Grand Hyatt, Tampa, Florida
Presenters: Martin McMahon, Jr., C. Wells Hall, III, Abraham N.M. Shashy, Karen L. Hawkins, Lawrence Lokken, Stephen F. Gertzman, James B. Sowell, John J. Rooney, Louis Weller, Ronald Aucutt, Karen Gilbreath Sowell, Herbert N. Beller, Peter J. Genz, Stephan R. Leimberg, John J. Scroggin, Lauren Y. Detzel, David Pratt and Samuel A. Donaldson
Sponsor: UF Law alumni and UF Graduate Tax Program
Additional Information: For more information and to register for the program please visit www.floridataxinstitute.org. There will be cocktail parties at the Grand Hyatt as part of the programs on Wednesday, February 19 at 5:00 p.m. and then again on Thursday, February 20 at 5:00 p.m. Please plan to attend these receptions. See how your classmates are doing and say hello to your favorite professors. (If they didn’t teach at Florida then you can call them on your cell phone during the cocktail hour). Help us strengthen and improve a UF LLM community, the school, and the synergism that results from these types of activities. Students will be in attendance and will greatly value conversations with any advice from alumni. Do you remember how you felt when you were in the LL.M. program and were able to interact with successful lawyers who gave you valuable feedback? There is also a reception for all attendees and the guests on February 19, 2014 at 5:00 p.m. for attendees and their spouses along with a reception on February 20, 2014 at 5:00 p.m. to thank the supporters of the University of Florida, the law school and the LL.M. program.