The American Taxpayer Relief Act provides the surviving spouse the opportunity to “port” the unused amount of the deceased spouse’s estate tax exemption (“DSUE”). To utilize this DSUE, a timely estate tax return (Form 706) needs to be filed, even if one is not otherwise needed.

Many clients with total estates over $3 to $5 million dollars but much less than $11,700,000 (the 2021 exemption amount) choose not to file an estate tax return to claim the DSUE. The reasoning? There is no way they would ever have a taxable estate.

However, with the proposed significant reduction to the estate tax exemption amount, those same clients are beginning to regret that decision. Now what? For many clients, it is simply too late. However, the IRS has a procedure under Revenue Procedure 2017-34 that in many cases allows for the late filing for an estate tax return that was not otherwise required to be filed so that the DSUE may be claimed. This “DSUE” return needs to be filed within 2 years of the date of death.

If this situation applies to you, contact your attorney soonest.

New York continues to aggressively argue that taxpayers are New York residents. In the recent Tax Appeals Tribunal Case of Obus and Coulson the Tribunal affirmed the deficiency against the taxpayers. The State argued they were “statutory residents” even though the taxpayers maintained that they lived in New Jersey and were only required to file New York income tax returns as non-residents.

In Obus, the taxpayer husband worked in New York City. The taxpayers purchased a vacation home in New York about 200 miles north of New York City. Although the New York home was only used for vacations, because the taxpayers were in New York over 183 days and had a permanent place of abode in New York state, they are deemed statutory residents.

This case is a reminder as to how carefully the residency and non-residency requirements of states with income or death taxes needs to be reviewed. In some cases, careful pre-planning can avoid being subject to a state’s tax on residents.

As of November 2, 2020, patients now have additional rights to their medical files under the full implementation of the 21st Century Cures Act, the last legislation signed by the Obama administration which coincidentally included the provision giving individuals the right to create their own SNT.

“Starting in the beginning of November, healthcare organizations must provide patients access to their electronic health data, free of charge. This requirement is different from those elucidated in the HIPAA Privacy Rule because it requires patients to have immediate access to their digital data, such as via a patient portal.

On the whole, providers must be able to make eight types of patient data available to all patients, free of charge:

•  Consultation notes
• Discharge summary notes
• History and physical
•  Imaging narratives
•  Laboratory report narratives
•  Pathology report narratives
•  Procedure notes
•  Progress notes”

Michael A. Lampert Named 2020-2021 Gerald T. Hart Outstanding Tax Attorney of the Year

The Florida Bar Tax Section will honor Michael A. Lampert with the 2020-2021 Gerald T. Hart Outstanding Tax Attorney of the Year Award.

The section chair each year selects a recipient to recognize his or her contributions to the advancement of the practice of tax law and commitment to the highest standards of competence and integrity. Chair D. Michael O’ Leary chose Lampert because of his “long history of professional accomplishments and contributions to the Tax Section.”

The award will be presented during the section’s 2021 Fall Meeting at The Breakers in Palm Beach.

Lampert served as 2012-2013 Tax Section chair. He is Florida Bar board certified in Tax Law and is vice chair of The Florida Bar Tax Law Certification Committee.

Lampert frequently lectures before both professional and community organizations and has served for many years as an instructor in the Continuing Education Division of Florida Atlantic University and on the editorial board of the CCH Publication Sales and Use Tax Alert. He received his undergraduate degree from the University of Miami, his Juris Doctor degree from Duke University, and his Master of Laws in Taxation from New York University. He also participated in a joint program with Temple University School of Law and Tel Aviv Faculty of Law in Israel. Lampert began practicing law in 1984 and has his own firm, advising clients on tax, estate planning, probate and elder law, with an emphasis on tax controversy matters. He is the father of two sons and lives in West Palm Beach with his wife Stacey.

Lampert named Gerald T. Hart Outstanding Tax Attorney of the Year

The U.S. Treasury houses “TIGTA” – the Treasury Inspector General for Tax Administration. TIGTA, being outside of the IRS, acts somewhat as an “Internal Affairs” for the IRS. It also works hard to maintain the integrity of the tax system. TIGTA has both law enforcement and general audit/review functions. They regularly review aspects of how the IRS operates.

Recently, TIGTA completed a report (Reference Number 2020-10-042) on how the IRS handles trust fund penalty appeals. As a reminder, the trust fund penalty can be applied to persons who willfully and, as a responsible person, failed to collect or remit to the U.S. Treasury employee withholdings. There are many factors that can indicate whether someone was a responsible person and if they willfully failed to collect and remit the payroll taxes. If the person being assessed a penalty disagrees with the assessment, they are given certain appeal rights with the IRS’s Independent Office of Appeals. The TIGTA report looked at how Appeals handled these appeals.

In summary, they found that in approximately 25% of the cases analyzed, the IRS did not follow the law and proper procedures. This included improperly dealing with taxpayer representatives without proper authority to act for the taxpayer, thus disclosing confidential information without authorization, and also contacting the taxpayer directly when there was a proper authorized representative who should have been contacted instead (a violation of taxpayer rights).

In some cases, appeals failed to properly document the file as to the basis of the Appeals decision (Appeals Case Memorandum). This includes, when applicable, explaining hazards of litigation when it is part of the reason to reduce the amount of the penalty.

Finally, and perhaps the item for taxpayers and practitioners to be most aware of, is the requirement that the protest (appeal) be signed under penalties of perjury. Failure to sign under penalties of perjury could result in an appeal deemed defective.

It is important that the appropriate penalties of perjury statement be signed for a valid appeal and it is imperative that the facts stated under penalties of perjury are accurate as it can be criminal if the “facts” are later found to be materially false. As I have often said to clients, “do not turn a civil case criminal”.

The Florida Department of Revenue sent emails out August 3, 2020 relating to whether face masks will be exempt from sales tax during the back to school tax holiday. The Department announced:

“On June 24, 2020, the Florida Department of Revenue issued Tax Information Publication (TIP) 20A01-04, “2020 Back-to-School Sales Tax Holiday August 7 through August 9, 2020.” Since then, wearing face masks has become a widely observed practice during the COVID-19 health emergency, and the Department of Revenue has received inquiries regarding whether face masks will be exempt from sales tax during the 2020 Back-to-School Sales Tax Holiday.

The law pertaining to the Back-to-School Sales Tax Holiday defines “clothing” as “any article of wearing apparel…intended to be worn on or about the human body.” In light of that definition, cloth and surgical face masks qualify as exempt items during the 2020 Back-to-School Sales Tax Holiday, August 7-9, 2020.”

Keep this in mind if you need additional masks!

Dear Clients and Friends,

So, your Paycheck Protection Program (PPP) loan was received. One loan officer described these loans as “groans”: a combination of a loan and a grant. But what should you consider doing now to maximize the “groans”, more technically your loan forgiveness?

As a reminder, forgiveness of your PPP loan depends largely on whether you use the money to pay forgivable expenses. These include (1) payroll costs (if you are self-employed, these costs include the net profit amount from your business, as reported on your 2019 tax return), (2) interest payments on mortgages incurred before February 15, 2020, (3) rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020. However, according to the Small Business Administration (SBA), not more than 25% of the forgivable loan amount (the amount of the loan used to pay forgivable expenses) may be attributable to nonpayroll costs. In other words, at least 75% of the loan must be used for payroll costs.

Trap: Remember that the calculations of expenses used to determine the loan amount were for a longer period than the eight-week period allowed for calculating the loan forgiveness amount. Be careful to properly incur the allowable expenses during the eight-week period.

Some tips to help you meet these requirements include:

• Set up a separate bank account for PPP funds, or deposit funds into your business savings account and transfer the money to checking and payroll accounts when needed. If you do not have separate payroll accounts, be especially sure to keep careful

• Do a payroll projection. If you feel that 75% of the loan will not be used for payroll, consider modifying your payroll periods (from semimonthly to weekly, for example) or paying out bonuses toward the end of the eight-week

• For mortgages, leases, and utilities, make sure you have back up to show that the obligations arose prior to February 15, 2020.

• If paying by credit card expenses that are includable in the PPP calculations, pay that portion by the end of the eight-week

Be careful with the number of employees and salary levels. Make sure these numbers are accurate. For the eight weeks from the loan, if your average number of full-time equivalent employees per month is less than the average during one of two base periods, the forgivable loan amount will be reduced. The base period is either (1) February 15, 2019 through June 30, 2019, or (2) January 1, 2020 through February 29, 2020. Choose the period that produces the best result.

Trap: Your forgivable loan amount will be reduced if salary levels are cut by more than 25 percent. For each employee who earns less than $100,000, you compare total salary paid during the eight-week period to with that employee’s salary during the most recent full quarter. If the reduction is greater than 25 percent, a corresponding reduction must be made to the loan forgiveness amount. Note that this test requires the business to look at every employee individually.

Fix the Trap: If you have already laid off or furloughed workers, try to restore employee headcount and salary levels by June 30, 2020. If you do so, any headcount and salary reductions that occurred between February 15, 2020 and April 26, 2020 will be ignored. You do not have to rehire the same employees and the rehired workers do not have to perform their customary work duties.

Trap: Be careful with labor and employment laws when rehiring employees.

Record Keeping and Backup is Key. Ultimately, you must show the bank the loan was used for eligible expenses and that the expenses meet the percentage requirements above.

Consider creating an ongoing spreadsheet with backup to demonstrate:

1. Employee headcount

2. Payroll tax filings (both federal and state).

3. Mortgage documents, leases, and utility

4. Cancelled checks and payment

5. Bank statements for the separate account used to pay forgivable If you did not set up a separate bank account, include copies of other bank statements with forgivable expenses highlighted to support the Electronic Funds Transfer (EFT) payments.

Applying for Forgiveness. You must wait until at least eight weeks after receiving your PPP loan before applying for forgiveness. At that point, an authorized representative of your business will need to certify that (1) the documentation presented is true and correct and (2) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments. Once the bank receives your loan forgiveness application, it has 60 days to review and either approve or deny it.

If, for some reason, only a portion of the loan is forgiven, you will need to fulfill all remaining payment obligations. The unforgiven portion of the loan will be subject to a two-year payback with a 1% interest rate. Fortunately, no payments will be due for the first six months (although interest will continue to accrue). fu addition, no collateral or personal guarantee is required, and there are no prepayment penalties.

Final Trap: The Internal Revenue Service has announced that while the forgiven amount of the PPP loan is not taxable (CARES Act§1106(i)) the otherwise deductible expenses paid for with the forgiven part of the “groan” are not deductible. Some argue that this loss of deduction is contrary to the intent of the CARES Act and the PPP loans. It remains to be seen if the IRS, Congress, or ultimately the Courts will change or clarify this deductibility issue.

This letter is an overview only and not specific legal advice. If you have any questions regarding your loan, please do not hesitate to contact us. Be safe.

No need to put off updating your estate planning over worry about an in-person meeting to sign. We have performed many pandemic parking lot estate planning document signings. All documents are reviewed and discussed ahead of time by phone or video conference. Clients stay in their cars with their gloves and masks. We pass the documents through a slightly lowered window. The clients sign and initial next to tabs and pass the documents back out the window. My staff and I, gloved and masked, each take a turn witnessing and then notarizing the documents while the others stay back. The clients can see us, and we can see them and each other, yet we are all properly social distanced and the clients never leave their car; only lower a window slightly. It is fast, convenient, and safe.

COVID-19 is reminding us that anything can happen. Estate planning can be effectively and safely done, even with the pandemic. Please let us know if you would like to schedule an appointment, which can be done by telephone or video conference.

Asset values down? Still have an estate tax “problem”? Here are some tips:

Gifts and other transfers. Consider gifting stock and certain other assets that have had a reduction in value due to the pandemic that, over time, are expected to regain their value and then some. This can be part of your annual $15,000 (per calendar year, per recipient) gift. It can also be part of a strategy utilizing some of your lifetime estate tax exemption amount.

This is also an ideal time for some clients to undertake more sophisticated planning, such as “sales to defective grantor trusts” and Grantor Retained Annuity Trusts (GRATs). With the reduced value assets and very low interest rates, significant net worth can sometimes be transferred to the next generation (or even generations) for little to no estate tax cost; effectively leveraging your lifetime estate tax exemption.

Roth conversions. Some clients have significant amounts in their taxable IRA. To convert to a Roth IRA would result in a current income tax. To the extent the IRA value is significantly reduced, now may be a good time to convert some of the IRA to a Roth IRA and incur the income tax on the lower values. Remember that there is no requirement to convert the entire IRA. Remember also to pay the appropriate estimated tax on the converted portion of the IRA.

Net Operating Loss. One often overlooked provision of the COVID-19 tax relief package is the ability to carryback certain net operating losses. While many businesses certainly would rather not have a loss, in some cases, a business has some legitimate flexibility in when it receives income and incurs certain expenses and deductions. New tax laws enhance this flexibility. With proper planning, it may be possible to generate a net operating loss for the current tax year in an otherwise healthy business and carry back the loss to a prior tax year. This could result in an income tax refund for a prior year at the cost of income tax in the future.

After a long wait and much anticipation, the Florida Department of Revenue has finally used an Order of Emergency (#20-52-DOR-003) that provides certain relief and extended deadlines to some corporations. While many hoped DOR would provide relief similar to what was provided by the IRS, this new order does provide some relief, albeit limited.

Entities with a Fiscal Year Ending December 31, 2019:

• Florida Corporate Income/Franchise return filing deadline is extended from May 1 until August 3, 2020.
• Florida Corporate Income/Franchise tax payment deadline is extended from May 1 until June 1, 2020.
• The deadline to submit a request for extension to time to file and make tentative payment is extended from May 1 until June 1, 2020.

Entities with a Fiscal Year Ending January 31, 2019:

• Florida Corporate Income/Franchise return filing deadline is extended from June 1 until August 3, 2020.
• Florida Corporate Income/Franchise tax payment deadline is unchanged and remains June 1.
• The deadline to submit a request for extension to time to file and make tentative payment is unchanged and remains June 1.

Entities with a Fiscal Year Ending February 29, 2019

• Florida Corporate Income/Franchise return filing deadline is extended from July 1 until August 3, 2020.
• Florida Corporate Income/Franchise tax payment deadline is unchanged and remains July 1.
• The deadline to submit a request for extension to time to file and make tentative payment is unchanged and remains July 1.

The DOR’s order also notes that payments submitted should be based on a “corporation’s best estimate of the amount of tax that would be due with the return”, though there is no mention of how underpayments may be addressed.

Whether it is because of or in spite of COVID-19, we are seeing an uptick in both new and existing clients wanting to create or update their estate planning. Some, much like being stuck home for a hurricane (but much longer), are looking to take care of something that can be taken care of while still self-isolating. Others, whether health care and front-line workers, or the rest of us who realize nothing is certain, have decided that it is time to take care of what they have been putting off.

Estate planning involves trying to efficiently address the “who gets what” when you die and how they receive it. Perhaps more critically, it also addresses the handling of your health care and financial affairs if you are incapacitated and not able to make decisions for yourself. This includes documents allowing access to your financial accounts and payment of your bills, as well as allowing access to medical records and making of health care decisions if you are unable to handle things. In some cases, it addresses federal and state (and even international) tax issues, guardianship of minor children, probate, Medicaid/nursing home planning, and even special needs planning for family members. For business owners, planning helps ensure continuity in the case of incapacity or death.

Even clients who had their estate planning prepared several years ago should have an estate planning “checkup”. Circumstances and the law change over time and a checkup is an opportunity to review your situation to see that it is consistent with current law and your current situation.

Please let us know if you would like to schedule an appointment, which can be done by telephone or video conference. We also have a secure client portal for uploading and viewing documents. Even signings can be done with proper social distancing protocols with our drive-through, parking lot document signings.

This is not our typical posting, but felt it was important.

On January 1, 2020, Florida’s county courts will see their civil jurisdiction jump from $15,000 to $30,000. This is the first increase since 1992. This amount increases to $50,000 in 2023.

On November 14, 2019, the Florida Supreme Court approved new rules of civil procedure that, in addition to technical changes, raise the jurisdiction of small claims court from $5,000 to $8,000, also on January 1, 2020.

One of the most significant changes will require those filing civil actions in county courts to file a cover sheet listing the amount in controversy. The cover sheets will allow court administrators to track the changes and report the impact to lawmakers by February 1, 2021.

The new legislation also directs civil appeals from county courts with amounts between $15,000 to $30,000 to district courts of appeal, bypassing circuit courts.

Recently the Elder Law Listserv has had a series of comments regarding documentary stamps on transfers between spouses. This article briefly covers this topic as well as provides an update on current law.

Florida Statutes § 201.02 imposes a documentary stamp tax on inter-spousal transfers of encumbered real estate. When one spouse adds the other to a deed on encumbered real estate, this often leads to the surprise documentary stamp tax result. In that case, a tax would be imposed on one-half of the mortgage note balance.

There has long been an exception in the law for conveyances incident to divorce. Therefore, the tax result was better if the client got divorced. The Tax Section and other sections of The Florida Bar, the Florida Land Title Association, and other groups advocated for a change to the law, in what I refer to as the “Defense of Marriage Doc Stamp Act.”

Last year the Legislature made the change—sort of. Fla. Stat. § 201.02(7) was added to exempt the conveyances of homestead property between spouses, even if the property is encumbered. That change, enacted July 1, 2018, was limited to transfers within one year of marriage. The reasoning for the time limit was that removing the one-year limit would cost the State too much revenue.

Good news: The Florida Legislature decided that removing the one-year limit would not cost that much in revenue after all. CS/HB 7123 removed the one-year limitation. The governor signed the bill on May 15, 2019, and it became effective July 1, 2019.

Note: This new law only applies to homestead property, not to non-homestead property, transferred between spouses.

Note: The law still does not apply to gift transfers of encumbered real estate to others, such as to children.

Practice tip: If a lender requires the spouse, who is being added to the deed, to sign on to the mortgage note, a surtax may apply.

What is commonly referred to as the Tax Cuts and Jobs Act (TCJA) changed the law by disallowing deductions for entertainment, amusement or recreation expenses. This left many wondering “what about business meals”?

While there are no regulations yet, the IRS issued Notice 2018-76 to address the issue. The Notice provides that taxpayers generally may still deduct 50% of the expenditure for food and beverages associated with their trade or business. More specifically:

1) the expenses should be ordinary and necessary under IRC Sec. 162;

2) the expenses cannot be lavish or extravagant;

3) the taxpayer, or an employee of the taxpayer, is present when food or beverages

are provided.

4) food or beverages are provided to a current or potential business customer, client,

consultant, or similar business contact;

5) food or beverages are purchased separately from entertainment (or stated

separately on one or more bills, invoices, or receipts).

Practice Tip: The substantiation requirements have not changed. Keep adequate receipts and, ideally, contemporaneous lists showing who the meal was with and the purpose. Remember that it is still necessary to have adequate backup to support the income tax deduction.

With a significant increase in the estate tax exemption amount, it is worth reviewing some of the tax aspects of immediate pre-mortem planning. While estate taxes are still a concern for some clients, for most clients, the main issue is the basis of the estate’s assets, as it has been for many years. Tax planning as part of estate planning is basis planning. For many, it is all about the basis.

To begin, do not forget to advise the client/client’s fiduciaries about non-tax related planning. Make sure assets are properly titled and health care directives are in place, and even advise the fiduciaries (often family members) how to properly sign as power of attorney so as to minimize personal liability, etc.

But what about tax planning?

DEATH BED GIFTS

Appreciated Assets: Clients love to avoid probate; however, if an appreciated asset is gifted immediately prior to death, the asset will not receive the basis step-up at death under Internal Revenue Code §1014. The income tax consequences to the beneficiary can be significant.

Assume the client purchased stock for $2. At the time of death, the stock was worth $10. A beneficiary received this stock as a gift prior to death and the stock is later sold by the beneficiary for $12. The taxable gain to the beneficiary is $10 ($12 – $2). The beneficiary receives a carryover basis only. If the same beneficiary receives the shares after the client’s death, the basis becomes the fair market value at death. The gain on the stock is $2 ($12 – $10 fair market value at death).

Depreciated Assets: What is often forgotten about the basis step-up at death rule is that it works in the other direction too. The rule is really a step to fair market value at death. So, for example, if the stock was purchased for $10, is worth $2 at time of death, and is later sold by the beneficiary for $6, there is a gain of $4 ($6 – $2) not a $4 loss ($10 – $6). So, if otherwise appropriate, sell securities in a loss position prior to death with the hope that the client can use the loss on his or her (likely) final income tax return.

Practice Tip: Remember that not all clients who are about to die, actually die (at least not for a while). A death bed gift not only may have adverse tax consequences, it can also interfere with Medicaid and Veterans Administration benefits.

WHAT IF THERE IS POTENTIAL FOR AN ESTATE TAX?

Consider making completed gifts of the annual exclusion amount under Internal Revenue Code §2503(b) as well as direct gifts for tuition and medical expenses IRC §2503(e). These gifts do not count against the lifetime exemption amount.

While it was not uncommon to see gifts that resulted in a gift tax when the exemption amount was much lower, it is less common to see that now. In any event, gifts made immediately pre-mortem, even with a gift tax due, are not likely to have a significant tax benefit if the client dies shortly after the gift is made. With that said, if the client lives, and the asset subsequently appreciates, there could be an estate tax savings because the appreciation is no longer in the client’s estate. Remember, however, that typical elder law clients will not have a taxable estate.

Practice Tip: Watch assets, such as real estate, that may be subject to another state’s death tax. In addition, some states have a gift tax, or may include gifts in the death tax calculation, if made within a certain time period before death.

Practice Tip: Care is also warranted if there is a risk your client may be deemed a resident of another state, particularly one with a death tax.

Reminder: Gift tax is paid by the person who made the gift. In some cases, particularly

with larger estates, having a gift tax paid pre-death can reduce the estate tax.

Note: With the higher estate tax exemption amount, this article is not addressing discount planning, which has always been a challenge immediately pre-mortem.

CHANGE OF RESIDENCY

The client’s family sometimes will bring the client back “up north” for their care. Often that up north state has a death tax and/or an income tax. In many cases, it is advantageous for the client to keep residency in Florida, if possible. If not possible, clearly change the client’s residency and update (or have updated) the client’s estate planning documents.

Practice Tip: As with most Florida residency planning, try to continue to focus the client’s life in Florida. In addition, consider obtaining (and updating) physicians’ written orders/care plans addressing why the client needs to be “up north” for care.

CHARITABLE GIFTS

Traditionally, if there was charitable intent, immediately pre-mortem charitable gifts would not only reduce the estate’s taxable estate (which it would also do post-death) but also provide an income tax deduction. With estate taxes less of an issue, where can the charitable deduction be used most effectively? Will the charitable deduction help reduce the client’s income tax or would it be more income tax effective for a beneficiary to make the charitable gift? Of course, the beneficiary will need to be trusted to make the charitable gift in the client’s honor.

Practice Tip: Similarly, it is important to consider whether the post-death donation of tangible personal property (such as the furniture no one wants) should be made by the estate or instead by a beneficiary who then makes the donation and receives the income tax deduction.

CARRYFORWARD LOSSES

Does the client have carryforward losses and suspended/passive losses? If so, consider using them (or have the surviving spouse consider using them in the year of death with a joint income tax return). If not used, they may be lost.

Practice Tip: If the beneficiaries plan to cash out a retirement plan promptly after the client’s death (rather than stretch the payout), consider cashing out some or the entire plan pre-death. In considering this approach, take into account the client’s and beneficiaries’ tax brackets and any of the client’s other deductions, carryforward losses, etc. These may offset the income if taken by the client.

RETIREMENT PLANS

Decide if the minimum distribution (or more than the minimum distribution) should be taken.

Practice Tip: If a minimum distribution is required and has not already been taken pre-death, make sure it is timely taken post-death.

GRANTOR TRUST TRANSACTIONS, CREDIT SHELTER TRUSTS, AND BASIS

Many clients set up irrevocable trusts when the estate tax exemption was much lower. Many of these trusts are taxed as grantor trusts with the income tax consequences passing through to the grantor client. See if the trust holds appreciated securities. If so, consider having the client purchase, for fair market value, the appreciated asset from the trust. Per Revenue Ruling 85-13, this transaction is not taxable to the grantor client (it is deemed to be a transaction by the client with the client). However, at the client’s death, the swapped asset should receive a basis step-up. Similarly, planning should be considered with credit shelter trusts created after the death of the first spouse to die. In some cases, it may even be advisable to shut down the shelter trust with the assets going to a surviving spouse. These assets may then receive a basis step-up at the surviving spouse’s death.

GIFT FROM BENEFICIARY

What if the spouse or other beneficiary has appreciated assets? Consider gifting these assets to the client (again, assuming the exemption amount is so high that there are no gift tax issues to the party making the gift). At death, the gifted property can go back to the beneficiary who gifted the property to the client – and do so at the stepped-up fair market value at death. Sounds too good to be true? Congress thought so too. Section 1014(e) does not allow the basis step-up if the death is within one year of the gift from the beneficiary, and with the gifted asset going back to the original gifting beneficiary.

Practice Tip: What is the tax down-side of trying? None really. If the client lives more than a year, the plan worked. If not, other than the gift itself, there is no harm.

Practice Tip: If the client is really not expected to live a full year, is the gifting beneficiary willing not to be the ultimate beneficiary? For example, is the client’s spouse willing to gift appreciated securities to the client and at the client’s death, have these assets go to children? This can work even if the death is sooner than a year from the original gift.

Trap: Make sure there are no strings or prearrangements with gift-back arrangements, as the Service can try to reverse the gift.

                                                                                                      Article written by Michael A. Lampert and published by The Elder Law Advocate, Vol. XXVI, No. 2 (Spring 2019)

Mr. Lampert contribution to helping those in need goes on.

West Palm Beach, Florida (Tuesday, July 10, 2018) – Michael A. Lampert, Esq., a board-certified tax lawyer in West Palm Beach, is honored to announce his re-election as president of the Alpert Jewish Family & Children’s Services.

Rabbi Yosef Rice of Palm Beach Synagogue where the Lamperts are members, delivered the dvar Torah at Lampert’s installation on June 4^th, 2018.

Prior to his position at the Alpert Jewish Family & Children’s Services, Lampert has lectured extensively to both professional and community organizations and served for six years on the Tax Law Certification Committee of the Florida Bar Board of Legal Specialization and Education. He is past Chair of the Florida Bar Tax Section, past president of the Palm Beach Tax Institute, past chair of the Tax Law Committee of the Palm Beach County Bar Association. He is a Fellow of the American College of Tax Counsel, selected to Florida Super Lawyers, past Chairman of The Greater Palm Beaches – Treasure Coast Region Area Chapter of the American Red Cross and has been elected to the Jewish Federation of Palm Beach County Board of Directors.

“I am honored to continue leading the Alpert Jewish Family & Children’s Services,” said Michael A. Lampert.  He added “It is very important to ensure that the agency continues to meet the needs of the most vulnerable among us. Giving back, should be a part of our life’s journey; my commitment to the agency is my small contribution.”

Lampert’s practice emphasizes the areas of taxation, estate and business planning with a special emphasis on tax controversy matters including tax litigation, audits, appeals, offshore disclosure and tax collection defense. He received his A.B. from the University of Miami, J.D. from Duke University and LL.M. in Taxation from New York University.

Over the last year our office has handled the defense of a number of attorneys acting as FIRPTA withholding agents facing FIRPTA withholding penalties.  These cases have generally occurred due to late submission to the IRS (Service) of the withheld funds. This article will briefly address the FIRPTA withholding rules, the penalties for violating the rules, the handling of  proposed penalties, and provide some practitioner tips. It is suggested that a tax controversy attorney handle the actual penalty appeal.

A. Under IRC §1445 there is a withholding obligation that is generally imposed on the buyer or other transferee (withholding agent) when a US real property interest (USRPI) is acquired from a foreign person.  In order to report and transmit the amount withheld, the taxpayer needs to use Form 8288.  This obligation to report also applies to foreign and domestic corporations, qualified investment entities, and the fiduciary of certain trusts and estates. Generally, 15% of the amount realized on the disposition of the USRPI must be withheld.   For dispositions that occurred before February 17, 2016, the withholding amount was 10% of the amount realized on the disposition of the USRPI by the transferor.  It is possible to obtain a reduction or elimination of this withholding requirement by applying to the IRS for a withholding certificate.

B. The transferee must file Form 8288 and transmit the tax withheld to the Service by the 20th day after the transfer.  If an application for a withholding certificate has been submitted to the Service on or before the date of transfer the transferee is still required to withhold the required 15%.  However, if an application for a withholding certificate is submitted to the Service, the time periods change.  Under Regulation §1.1445-1(c)(2)(i)(A), the withholding agent/transferee is not required to report and pay over to the Service the withheld amount “until the 20th day following the Service’s final determination with respect to the application.” The Regulation continues to explain that the final determination “will be deemed to occur on the day when the copy of the withholding certificate or the copy of the notification denying the request for a withholding certificate is mailed by the Service to the transferee.” While this extends the time to file Form 8288 and pay the amount determined on the withholding certificate, the original 15% MUST be withheld from the date of the transfer.  (NOTE: the instructions for Form 8288 state that “if the principal purpose for filing the application for a withholding certificate was to delay paying the IRS the amount withheld, interest and penalties will apply to the period beginning on the 21st day after the date of transfer and ending on the day
full payment is made.”)

C. Under IRC §6651, penalties apply for failure to file Form 8288 when due and failure to pay the withholding when due.  Additionally, if someone is required to, but fails to withhold tax under §1445, the tax including interest may be collected from them.  Under §7202 there is a penalty of up to $10,000 for willful failure to collect and pay the tax.  Corporate officers or other responsible persons may be subject to a penalty under §6672 equal to the amount that should have been withheld and paid over to the IRS.

1. Under IRC §6651(a)(1), if there is a failure to file on the date prescribed for the specific tax, “there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 months, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent”

• a. This penalty can be abated if taxpayer can show that the failure is due to reasonable cause and not due to willful neglect.

2. Under IRC §6651(a)(2) if there is a failure to pay the amount shown on the tax return on or before the date prescribed for payment so the specified tax, “there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate.”

• a. This penalty can be abated if taxpayer can show that the failure is due to reasonable cause and not due to willful neglect.

3. Under IRC §6651(f) if the failure to file any return is fraudulent, the taxpayer should substitute “15 percent” for “5 percent” each place it appears, and substitute “75 percent” for “25 percent”.

D. It is the use of the reasonable cause exception that has caused most of the penalties we have seen to have been abated.  In our experience, the Service seems to be open to hearing reasonable cause arguments as to why these penalties should not be imposed.  Some of the arguments could include:

1. If there is a dispute as to when the payment/return was actually sent, it is helpful to remember that IRC 7502 explains that required returns and payments mailed within the allowed time period, if received, are considered timely made regardless of whether the Service receives them within that period. The statute specifically states that “the date of the US postmark stamped on the cover in which such return, claim, statement or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.”
Practice Tip: Make sure to send the payment/return via certified mail and to physically take the package to the post office and have them put a date stamp on the
certified receipt.  If any other delivery service is used, make sure it is on the Service’s approved list.
Practice Tip: After the withholding payment clears, put a copy of the cleared check (preferably front and back) into the file.  Sometimes the Service will credit the buyer/transferee and the withholding agent with the payment of the withheld funds but not “connect up” the payment to the Seller’s income tax return when filed.  Having a copy of the properly notated check readily available will make it easier to respond to the Seller’s request for back up. It can be helpful to simply send the Seller a file copy of the cleared check upon receipt.

2. Sometimes the Service will mix up the dates if a withholding certificate was requested.  For example, we have seen them mix up the withholding notice date with the response date (date submitting of the withheld funds is required).  In this case it is important to remember that the payment and return are not due until 20 days AFTER the withholding certificate is issued or denied.  If the taxpayer failed to actually receive a copy of the withholding certificate this could also be a potential argument for reasonable cause.

3. If you are (or are representing) a withholding agent who is also an attorney or CPA who has timely withheld, but not timely paid the withheld amount to the Service, it could be helpful to include an argument that taxpayer never received any benefit from this withheld money as it was kept in the law firm’s (or CPA firm’s) trust account.
Practice Tip: If using this argument for an attorney, include Rule 5-1.1 of the Florida Bar Rules regulating attorney trust accounts, Florida attorneys are not allowed to receive benefit from interest on funds held in trust. This tends to show that there was no added incentive for taxpayer (the attorney withholding agent) to keep the funds in its trust account.

4. We have had cases where a staff person of the withholding attorney simply did not mail the withholding check to the Service.  Once again, in this case use all the information you have to argue that it was reasonable cause (i.e. money was withheld, check was cut to the IRS (U.S. Treasury), the employee was to timely mail the check, but hid the fact they did not, while showing how the withholding attorney/withholding agent appropriately supervised, etc.).

E. The structure of the withholding certificate application process is somewhat faulty.  Typically the seller applies for a withholding certificate, but it is not granted prior to closing.  The withholding agent (often the buyer’s attorney or the closing title company) holds the withheld amount pending receipt of the withholding certificate.  The certificate is issued in full or in part as determined by the Service.  However, the Service notifies the seller or the seller’s CPA or attorney who handled the filing of the withholding certificate.  The escrow agent is often not notified by the actual recipient of the withholding certificate until well after the Service’s notification regarding the withholding certificate is sent to the seller/seller’s CPA or
attorney who prepared and filed for the withholding certificate.  The amount due to the Service is late – resulting in a penalty.  Fortunately the escrow agent has the underlying funds, or the escrow agent could be liable for that amount too.

Trap: The first time abatement of penalty defense does not apply.

Practice Tip: When acting as withholding agent, if someone else filed for the withholding certificate:

• Confirm and obtain a copy of the filing and proof of timely filing.
• Make sure the correct amount is withheld.  The amount should be consistent with both the actual transaction and the timely filed withholding certificate request.
• Remind the person who submitted the certificate to immediately inform the withholding agent when the withholding certificate or denial is received.
• Place multiple ticklers to follow up to see if the withholding certificate or denial has been issued by the Service.

These steps can help to avoid a penalty situation and bolster a reasonable cause argument if there is a penalty

A major disaster like Hurricane Harvey and Irma impacts individuals across the country. Those in communities affected by the hurricane have to rebuild their lives and may wonder how the IRS looks at these disasters. People far and wide who want to donate for hurricane relief risk giving to a fake charity. Learn what the IRS has to say regarding Hurricane Harvey relief.

Affected by Hurricane Harvey? IRS Tips

FEMA has a map of communities that qualify for disaster relief.

If you were adversely affected by the hurricane, you may be able to withdraw funds from your retirement account, penalty-free. The IRS has relaxed rules around these disbursals for individuals affected by Harvey. To use the money you’ve saved to rebuild your life after the flooding, make a hardship withdrawal from your retirement account by January 31, 2018.

While the government normally fines filling stations for selling dyed diesel fuel for use on highways, this penalty is waived through September 15 due to fuel shortages.

If you filed an extension on your taxes, the deadline has been extended further due to Harvey. Now, individuals and businesses have until January 31, 2018, to file their 2016 taxes. The deadline has also been extended for estimated tax payments, such as quarterly self-employment taxes. Penalties for taxes, including penalties for federal payroll and excise tax deposits, are waived as well.

Donating for Harvey or Irma Relief? Avoid Scams

Scammers go to great lengths to make their scams look authentic. Before you donate, look up “organization + scam” in a search engine. If you find scam search results, look for a different way to donate for hurricane relief. When donating money, pay with a credit card rather than a debit card; this gives you greater protection to dispute the charges.

In the case of a federally-declared disaster, an affected taxpayer can call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. For more information on preparing for disasters, the IRS urges tax-payers to visit their website.

About The Law Offices of Michael A. Lampert, P.A.

The Law Office of Michael A. Lampert, P.A. is a boutique tax and estate planning law firm located in West Palm Beach, Florida.  The firm emphasizes taxation, estate planning and administration and elder law, with an extra concentration in tax controversy.

Source: The Law Offices of Michael A. Lampert P.A.
Media Contact Information: contact@LampertTaxLaw.com

Sources:

Source 1: http://taxandelderlaw.com/index.php/en/
Source 2: https://webprod.floridabar.org/wp-content/uploads/2017/04/tax-law-cert-flyer.pdf
Source 3: https://www.floridabar.org/member/cert/

Don’t Include Anyone’s Social Security Number or Other Non-Public Information

On May 8, 2017, the IRS issued a notice to tax-exempt organizations reminding filers not to include any social security numbers on the filings. With the growing prevalence of, and threat of, identity theft, organizations need to be conscious about safeguarding social security numbers and other non-public information about a non-profit company’s officers, directors, employees and donors.

Most information included on Form 990 filings is made publicly-available, including attachments to the filings. When a non-profit organization includes social security numbers or other non-public identifying information, it is inadvertently putting the owner of that information at risk.

Reduce Risk by Filing Electronically

Those in charge of filing their organization’s Form 990 return this year can speed up the process and reduce risk of inadvertent disclosure by filing the annual return online, through an IRS authorized e-Filing provider. Filing online is not only fast and easy for the filer; the IRS also provides an acknowledgement of receipt.

What Happens if a Tax-Exempt Organization Misses their Filing Deadline?

Sometimes, tax-exempt organizations forget about their IRS filing requirements. After all, as a tax-exempt organization, there are no taxes to pay with the filing, so submitting a form can lose some of the urgency other companies may feel come tax season every year.

However, it is important to understand that there are potential consequences of failing to file. Organizations required to file Form 990-series returns, and who fail to do so for three years, will lose their federal tax exemptions.

To learn more about filing requirements for tax-exempt organizations, contact the Law Offices of Michael A. Lampert P.A. today in West Palm Beach, FL at (561) 689-9407.

Source
https://content.govdelivery.com/accounts/USIRS/bulletins/1993d4d?reqfrom=share
https://www.irs.gov/uac/e-file-for-charities-and-non-profits
https://www.irs.gov/charities-non-profits/annual-reporting-and-filing

Change in Policy

Recently, applying for an Offer in Compromise arrangement became more difficult for some taxpayers. On March 27, 2017, the IRS began rejecting applications for Offers in Compromise submitted for taxpayers who have not filed all required tax returns.

Even if you have previously filed all required tax returns, you will not be eligible for an Offer in Compromise if you have not made all required estimated tax payments or if you are in an open bankruptcy proceeding.

Seek Legal Representation for Advice and Assistance

If you are concerned about being able to manage your federal tax obligation, an Offer in Compromise may be able to provide needed financial relief.

An experienced tax attorney can help you determine eligibility for the Offer in Compromise program, and can work with you to identify and evaluate other avenues that might be available to you. With more than 30 years of legal experience, Board Certified Tax Attorney Michael A. Lampert helps clients with a variety of tax, business, estate planning and administration matters, with an emphasis on tax controversy matters.

To learn more about Offers in Compromise, contact the Law Offices of Michael A. Lampert P.A. today in West Palm Beach, FL at (561) 689-9407.

Source:

https://www.irs.gov/individuals/offer-in-compromise-1

https://www.irs.gov/taxtopics/tc204.html

The April 18th tax deadline is fast approaching, but if you haven’t filed yet, there’s no need to get stressed out,  We are providing  5 sound tax tips for you.

1. IRS to Start Audit Process By Mail, Not Phone. As recently as June 21, 2016, the IRS website noted that “Should your account be selected for audit, you will be notified in two ways: by mail or by telephone.  In the case of a telephone contact the IRS will still send a letter confirming the audit.  E-mail notification is not used by the IRS.”

However, by way of a May 20, 2016 memorandum from the IRS Deputy Commissioner for Services and Enforcement, effective immediately all initial (emphasis from the memorandum) contact with taxpayers to commence an examination must be made by mail, instead of the telephone.  This change is in response to the continuing threat of phone scams, phishing and identity theft.  Note that IRS employees can call the taxpayer as needed after sending the letter (allowing 14 calendar days from mailing the letter).  Note also that the IRS is evaluating other contacts with taxpayers outside of the examination area to address risks with respect to phone scams and other threats

Practice Tip: Scam artists are very good and generally deal in volume.  It is surprisingly easy to be taken in by a scam.  Some scam artists send fake letters and notices that look very much like official IRS documents.

Practice Tip: While being alert to fraud, remember that some IRS notices come with real deadlines that, if missed, can significantly affect a client’s rights.

2. Taxation of Wrongful-Incarceration Recovery-Protecting Americans from Tax Hikes (PATH) Act

With the advent of wrongful conviction law clinics, more advanced DNA and other testing, and for other reasons, wrongfully-incarcerated persons are being released from prisons.  Sometimes the wrongfully-incarcerated are awarded civil damages, restitution or other monetary award in connection with their incarceration.  Many of the wrongfully-incarcerated are elders by the time they are released from incarceration.

The PATH Act, enacted in December 2015, included an exemption from income for damages received by wrongfully-incarcerated persons due to the wrongful incarceration.  The PATH Act has a provision allowing a special one year window to file a claim for a tax refund due to the recovery now being retroactively treated as nontaxable.  This means that clients have until December 19, 2016 to make the refund claim for tax periods that would otherwise be too old to request a refund.  In most cases, claims for tax years 2012 and prior years would be barred but for this special rule.

3. Final Medical Expenses – Can You Back Date?

Usually “back dating” is unethical, if not illegal.  However, a decedent’s final medical expenses can be an exception.  Final medical expenses can, of course, be deducted on the Federal Estate Tax Return (Form 706).  However, with the relatively high federal estate tax exemption ($5,450,000 in 2016), it is becoming increasingly less likely that an estate tax return will be filed.IRC §213(c) allows medical expenses paid within one year of the decedent’s death to be deducted, subject to the normal limitations, on the decedent’s final income tax return.  (This option requires forgoing taking the deduction on the estate tax return.)

Practice Tip: Given the high estate tax rate relative to the marginal income tax rate, if there is an estate tax, the medical expense deduction will almost always be more valuable if taken on the estate tax return rather than on the final income tax return.  The client would then forgo the deduction on the final income tax return.

Trap: If the medical deduction is taken on the final income tax return and the deducted amount is ater reimbursed by insurance, the reimbursed amount received is income in respect of a decedent (IRD).  This IRD will need to be reported on the income tax return for the estate (Form 1041).

4. Disclosure of Confidential Estate Tax Return Information.The IRS Office of Chief Counsel issued advice (CCA 201621014) addressing who can request confidential estate tax return information.  In addition to the Personal Representative/Trustee, the heirs at law, “next of kin”, will beneficiaries and donees of property can request confidential estate tax return information.  The requester needs to show that they have a material interest (usually financial) when requesting the information.

Practice Tip: In situations where the estate refuses to provide a copy of the estate tax return to a client/beneficiary, it is possible that some of the information can be obtained from the IRS.  It is possible that even the threat of making the information request to the IRS will cause the Personal Representative/Trustee to release information.

5. Reminder About State Taxation on Retirement Plan Distributions.

Federal law prohibits states from taxing retirement plan distributions of non-residents (Title 4 USC, Chapter 4, Section 114, enacted 1996).  This includes 401(K), defined benefit and profit sharing plans, IRAs, SEPs, 403(a) and (b) plans, etc.  Certain nonqualified deferred compensation plans are also exempt in some cases.

Practice Tip: This law applies to “legal residents”.  The “normal” planning to clarify the state of residency is especially critical when attempting to use this law.

It seems that each time the IRS “improves” its Power of Attorney form (Form 2848) they make it more difficult for practitioners.  The latest revision is dated 3-2012.  Fortunately, forms submitted prior to the new form being issued are still acceptable.

First, you now need separate powers of attorney for husband and wife.
Second, in the area on the new form where you (the representative) list your name and other information, there is now a very small box.  You need to check this box if you want to also receive notices and communications from the IRS.  This box is new and easy to miss.
Third, review carefully whether or not you want any of the additional items listed in paragraph 5, acts authorized.  These involve the power of disclosure to third parties, the power to substitute or add representative(s) and the power to sign returns.  Many times, you will want the first two powers.
Fourth, make sure the size of the print you use when completing the form is large enough to read when the form is faxed.  The IRS will reject a POA that is legible to you when it becomes illegible when faxed.  This is the case when using the IRS.GOV fill-in on line Form 2848.
Fifth, despite the section for it on the form, you do not need to provide a telephone number for your client on the POA.  Leaving the box blank might reduce the amount of calls to your client by the IRS.
Sixth, to be safe try to keep the date of signing of the POA by the client within 3 days of your signing the POA as practitioner.  Otherwise, the IRS may reject the POA.  (Usually anything within a month is acceptable, yet sometimes they say three days – be safe!)

Trap One

The practitioner representing an incapacitated client should never alone rely on a Form 2848, Power of Attorney and Declaration of Representative, signed while the taxpayer client had capacity.  Such a power of attorney, because it is not durable, is revoked upon the taxpayer’s incapacity.  Halper v. Commissioner, 73 T.C.M. (CCH) 1897 (1997).

Trap Two

The statute of limitations on the assessment of additional tax does not begin to run on a return filed without a signature or on a return signed by another who is without authority. Richardson v. Commissioner, 72 T.C. 818 (1979) (unsigned return); Elliott v. Commissioner, 113 T.C. 125 (1999) (signature of person without authority).
What about filing for an income tax refund?  As a reminder, refund claims must normally be filed within three years following the filing of the return or two years after payment of the tax, if later. I.R.C. § 6511.

Tip One

When assuming representation for an incapacitated person, the practitioner should check to see if all tax returns have been timely filed.  The practitioner should also determine whether the taxpayer client might be entitled to any refunds.
But what if the taxpayer client is incapacitated?  If the refund deadline is missed, the practitioner should determine whether the limitations period has been tolled on account of the taxpayer’s disability.  The limitations period on refund claims is suspended during any period in which the taxpayer is unable to manage the taxpayer’s financial affairs by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for at lease one year.  However, no suspension of the statute of limitations occurs if the taxpayer’s spouse or other person, such as a guardian or agent under a durable power of attorney, is authorized to act on the taxpayer’s behalf with respect to financial matters.  I.R.C § 6511(h)(2)(b).

Tip Two

When requesting a suspension of the limitations period on account of disability, a statement of a physical certifying that the taxpayer had the requisite disability must be submitted. In addition, the person filing the claim for refund or credit must certify that, during the period of disability, no one was authorized to act on the taxpayer’s behalf.  Rev. Proc. 99-21.  Obtaining tax counsel assistance is advisable.

In September 2012 the Treasury issued proposed changes to Circular 230, the rules governing practice before the IRS.  Final regulations were finally issued, effective June 12, 2014. Here were changes and clarification in multiple areas.  They include:

-Negotiation of taxpayer checks.  Circular 230 prohibits tax preparers/practitioners from negotiating taxpayer checks.  The Service clarified that this prohibition does not apply to an individual acting solely in the capacity of a trustee of a trust or administrator/executor of an estate because that person is acting as the taxpayer, not as the taxpayer’s representative.  This clarification does not help elder law attorneys acting in dual capacities if they are acting as tax practitioners
– General standards of competence.  The final regulations clarify that competence requires the “appropriate level of” knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.
– General Circular 230 Compliance.  Practitioners before the IRS are subject to discipline for violations of all aspects of Circular 230.  This includes meeting the practitioners’ own tax filing and tax payments.  In my own tax controversy practice I see attorneys who have not filed multiple years of required business and personal tax returns, and that have not paid the tax due.
– Reliance on other professionals.  Practitioners may reasonably rely on other professionals.  However, such reliance is prohibited when the practitioner knows or reasonably should know that the other person is not competent or lacks the qualifications to provide the advice.  Likewise, reliance is not reasonable when the other person has a conflict of interest. This provision is very helpful for elder lawyers addressing tax issues who obtain assistance from qualified tax attorneys, CPAs, appraisers and the like.
-Written advice and Email footers.  Perhaps the most well known and anticipated changes were with the written advice rules.  The new regulations remove the separate provision for covered opinions (tax shelter type opinions).