ALERT – UPDATE 2.0 – New Rules for Basis Consistency

In an earlier post I described the new rules for basis consistency about which executors and their advisors must be aware.  In an update to that earlier post, I highlighted the regulations that had been issued.  The deadline for complying with the new rules was March 31, 2016.  On March 23, 2016, the IRS issued another notice further extending the deadline to comply with the new rules until June 30, 2016.   This extension gives executors and their advisors more time to digest the new rules and regulations, and hopefully, more accurately complete Form 8971 and Schedule A.  #estateadministration #taxplanning #basisconsistency #form8971 #IRSregulations #taxplanning #estatetax

The ABLE Act – Proposed Legislation Will Modify Certain Provisions

An earlier post gave a brief summary of the Achieving a Better Life Experience Act of 2014 or the ABLE Act.  Three different pieces of legislation were introduced on March 17, 2016 that would change some of the provisions of the ABLE Act.  Below is a brief summary of each proposed change.

  1.  Current law limits eligibility for the creation of an ABLE account to individuals with disabilities where the disability occurred before turning 26 years old.  H.R. 4813 would increase that age from 26 to 46.
  2. H.R. 4794 would allow for rollovers between 529 accounts and ABLE accounts.
  3. Finally, H.R. 4795 would permit individuals with disabilities to save additional monies to an ABLE account above the annual maximum ($14,000.00) now in place.  Such additional contributions would be allowed for those individuals with disabilities who work and earn income.  The additional contribution would equal the lesser of (a) his or her “compensation…for the taxable year” or (b) “an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins.”

Updates will be posted as the legislation moves forward.  #specialneeds #ABLEact #estateplanning #proposedlegislation

The ABLE Act – An Additional Resource for Families and Advisors

In 2014, the Achieving a Better Life Experience Act of 2014 or the ABLE Act was signed into law.  Under the ABLE Act, certain savings accounts could be established for individuals with disabilities.  Such accounts allow for monies to be set aside for an individual with disabilities without disqualifying the individual from public benefits such as Social Security Income (SSI) or Medicaid.  The total annual contributions are currently capped at $14,000, but the accounts can grow and be funded up to state mandated limits.  Virginia and Maryland limit these accounts to $350,000 while the District of Columbia caps the accounts at $260,000.  Various other restrictions apply including restrictions that may impact an individual’s SSI benefit for a period of time and require any remaining amounts in the account to be used to pay back for Medicaid benefits that are received; generally known as a “Medicaid pay-back” provision.

Recently, the ABLE National Resource Center, an organization founded and managed by the National Disability Institute (NDI), went live with an informative website for families and professional advisors interested in learning more about the ABLE Act and establishing an account for an individual with disabilities.  In addition, the website provides state specific information since each state has implemented the ABLE Act differently.   Families of individuals with disabilities now have another resource in addition to consulting with their professional advisors if they are considering creating an account to ensure such planning fits within their overall goals and objectives.  #specialneeds #ABLEact #estateplanning @RealEconImpact

ALERT – UPDATE: New Rules for Basis Consistency

I previously posted about the new rules for basis consistency about which executors and their advisors must be aware.  I noted that the IRS had indicated that regulations would be forthcoming.  Late last week the proposed regulations were released relating to both Section 1014(f) and Section 6035 and I have highlighted a few points below.

One of the biggest issues about which clarity was being sought was whether an executor of an estate in which an estate tax return is being filed to take advantage of portability needs to complete and file Form 8971.  The proposed regulations exclude such returns from the requirement; that is, if an executor is simply filing for portability, then Form 8971 is not required. 

For those who are required to file an estate tax return, the regulations provide some additional guidance as to how an executor is to go about satisfying this new requirement.  For example, if at the time the Form is due, the executor does not yet know what assets a beneficiary will receive, then the executor must report all assets the beneficiary may receive. This ultimately means that the same assets may be reported to several different beneficiaries.  This also means that an executor will be required to supplement the initial filing of Form 8971 and make it clear to the beneficiaries which filings are the final ones.

Moreover, it now appears that when a beneficiary who originally received an asset from an estate subsequently transfers that asset to another family member or entity, the transferring beneficiary will also be required to file Form 8971 with the IRS and report the basis to the family member or entity.  This requirement impacts many individuals who otherwise had no reporting requirement to the IRS and may not be paying attention to the fact they now have these requirements.

Lastly, the new rules, as clarified by the regulations, do not allow for a step-up in basis (a discussion from an earlier post) in certain circumstances.  After discovered assets that should have been disclosed on the estate tax return and were initially not, will have a zero basis, and therefore, be subject to greater income taxes consequences when sold unless certain corrective measures are taken.

What these new rules and proposed regulations tell us is that if you are dealing with a taxable estate, then you should consult with your professional advisor about various filing requirements to avoid missing a filing and incurring the resulting penalties.  #estateadministration #basisconsistency #form8971 #IRSregulations #taxplanning #estatetax

The IRS and Its “Dirty Dozen”

Last week I passed along a few tales of identity theft and phone scams involving the IRS.  The IRS also annually posts a list of the “Dirty Dozen” tax scams that may impact you or for which they look when reviewing tax returns. Number 1 on the list was identity theft and number 2 centered around phone scams.  As you can see, fraud and identity theft involving the IRS is becoming more common and you need to be aware of the most likely scams.  Moreover, the threat has increased now that it has been revealed that the recent IRS hack will impact many, many more taxpayers.  Be sure to talk to your professional advisors about possible ways to protect yourself.  #identitytheft #IRShacked #taxfraud #dirtydozen #protectyourself