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Florida's Constitution provides that if a decedent's homestead passes to the heirs of the decedent, third party creditors of the decedent cannot reach or levy against the homestead. What happens if the decedent provides in his or her last Will that the homestead is devised to a child, but should be used (along with other non-homestead property that is specifically devised) to pay debts of the decedent if there are insufficient other assets? Florida's 3rd District Court of Appeals had previously provided that the constitutional protection trumps the decedent's direction, and thus the homestead would continue to be exempt from creditors of the decedent. That court, on rehearing en banc, has changed its collective mind - thus, if directed by a decedent, his or her homestead will be encumbered by the debts of a decedent even if the property will otherwise pass to a protected heir. Cutler v. Cutler, 3rd DCA, Case No. 3D04-3070 (September 3, 2008). posted by Charles Rubin at 12:48 PM 0 comments U.S. persons and entities with interests in non-U.S. corporations take heed – noncompliance with information reporting requirements will soon lead to automatic imposition of substantial U.S. penalties. The reporting at issue is for Form 5471, which must be filed by U.S. persons with certain stated interests in foreign corporations. The persons who must file are listed in the instructions to the form, which can be reviewed at http://www.irs.gov/pub/irs-pdf/i5471.pdf. The penalties for nonfiling are significant, especially since they do not relate to any specific amount of tax being due and are imposed even if the taxpayer owes no U.S. income tax. Each failure to file results in a $10,000 penalty, and a 10% reduction in available foreign tax credits. In the past, such penalties were typically imposed only at the discretion of a tax auditor after a return is audited. Now, starting January 1, 2009, all late filed returns will automatically be assessed penalties. Taxpayers will then need to be able to show reasonable cause for nonfiling to be able to get the penalties removed. Perhaps this wouldn’t be such a big deal, if there weren’t so many taxpayers that did not file the Forms due to ignorance of the filing requirement. Of course, the larger taxpayers who have and can afford knowledgeable tax advisors, will likely not run afoul of the rules. Thus, it is likely that the penalties will disproportionately fall on smaller taxpayers who can ill afford such substantial penalties. Anyone with interests in foreign corporations who may be subject to the reporting should check immediately with their tax advisors to determine if it is advisable whether filings should be undertaken prior to January 1, 2009, especially as to returns due for prior years. posted by Charles Rubin at 2:28 PM 0 comments A new provision enacted under the Emergency Economic Stabilization truth about enzyte Act of 2008 has stepped up the record keeping and reporting obligations of securities brokers. Brokers are presently required to report sale information to the IRS each year, to assist the IRS in determining if taxpayers are properly reporting their securities gains and losses. The new provision now requires the broker to include in the report information on the taxpayer's adjusted basis in sold securities, and whether the gain or loss on sale is long-term or short-term. I am sure the brokerage industry is thrilled with the additional headaches and compliance costs imposed on them by Congress. This reporting kicks in after 2010. posted by Charles Rubin at 5:29 PM 0 comments
posted by Charles Rubin at 3:51 PM 0 comments As previously discussed, changes to preparer penalties had created a conflict between tax return preparers and taxpayers. The essence of the controversy was that taxpayers could report a tax issue based upon a "reasonable basis," and would be insulated from penalties if the position turned out to be wrong. However, a preparer could be penalized for the same reporting, unless he or she could show that the reported position was more likely than not to be sustained, a substantially higher standard than the taxpayer's "reasonable basis" standard. Thus, to protect themselves from penalty, preparers might encourage their clients to adopt a safer tax position than the taxpayer had to adopt under the reasonable basis standard and had to struggle to protect both themselves and their clients on issues where there was uncertainty. The recently enacted tax act has now dropped the preparer standard down to the same "reasonable basis" standard as applies to the taxpayer. This is a welcome provision that avoids preparers having to make defensive disclosures to taxpayers to protect themselves and otherwise complicating their practice and making them a policeman for the IRS. To summarize the revised rules: a. Both taxpayers and their preparers can avoid penalties relating to a tax return position if there is "substantial authority" for the position. Generally, substantial authority exists if the weight of authorities supporting the taxpayer's treatment is substantial in relation to the weight of those that take a contrary position. Substantial authority includes the Code and other statutes, regs (final, temporary, and proposed), court cases, tax treaties, statements of Congressional intent, and administrative pronouncements (revenue rulings, revenue procedures, private letter rulings, technical advice memoranda, actions on decisions, general counsel memoranda, press releases, notices, and similar documents). b. If the tax return position is adequately disclosed to the IRS in accordance with IRS requirements, the standard for avoiding penalties is dropped to a lower "reasonable basis" standard. c. However, for tax shelters and listed transactions, penalties can be avoided only if there was a reasonable belief that it was more likely than not that the position would be sustained on its merits. Interestingly, the change in the law does not allow for a reduction in the "more likely than not" standard under c. even with disclosure, which is a change from prior law. Code Section 6694(a), as revised. Labels: Penalties posted by Charles Rubin at 5:48 PM 0 comments The Department of Revenue has now resolved this issue in a manner favorable to taxpayers. At least in situations involving unrelated buyers and sellers, it has indicated in a recently issued Technical Assistance Advisement that the documentary stamp taxes will be calculated on the lower purchase price paid by the buyer, without regard to the portion of the mortgage debt that is not taken over by the buyer. It has based its position on the interpretation that consideration passing between the buyer and the seller is equal only to what the buyer is paying. The fact that there is a simultaneous reduction in the mortgage debt by the lender should not affect the consideration amount between the buyer and seller. |