Tax and estate planning update

To our friends who are tax and estate planning professionals:

By now, you’ve read/heard of the horrific news that the IRS destroyed an estimated 30 million paper-filed information returns in March 2021 due to the backlog. Here is a set of a few other articles that I hope you find interesting and helpful to your practice. 

How IRS Can Tax ‘Gifts’ and Impose Big Penalties by Robert W. Wood, Forbes
In the U.S., gift tax falls on the giver not the recipient. But when it comes to foreign gifts and inheritances, these rules aren’t as well publicized but the stakes are huge. If you’re concerned about proving that something was a gift or inheritance instead of income, you’d better file IRS Form 3520. Ditto if you are concerned about avoiding penalties.
 
Tax Issues That Arise When a Shareholder or Partner Dies by Carol Warley, CPA/PFS, J.D.; Ed Decker, CPA; Nick Passini, CPA; Mike Laier, CPA; Brittany Pierson, CPA; Rebecca Warren, CPA; and Michael Reeves, CPA, The Tax Advisor
When an owner of a passthrough entity dies, certain tax implications may arise on both the individual and entity level. This article examines the various federal income tax issues to be mindful of in these circumstances.
 
America’s Highest Earners and Their Taxes Revealed by Paul Kiel, Ash Ngu, Jesse Eisinger and Jeff Ernsthausen, ProPublica
Secret IRS files reveal the top US income-earners and how their tax rates vary more than their incomes. Tech titans, hedge fund managers and heirs dominate the list, while the likes of Taylor Swift and LeBron James didn’t even make the top 400.
 
Staffing shortages, backlog hampered IRS in 2022 filing season, TIGTA says by Paul Bonner, The Tax Advisor
Continued personnel shortages and a growing backlog of some returns significantly impeded the IRS's performance during the 2022 income tax filing season that ended last month, the Treasury Inspector General for Tax Administration (TIGTA) reported in a preliminary audit.
 
IRS proposes to amend estate and gift tax basic exclusion regs by Paul Bonner, Journal of Accountancy
The IRS issued proposed regulations on April 26, 2022 (REG-118913-21) that would provide an exception to the anti-"clawback" special rule that preserves the benefits of the temporarily higher gift and estate basic exclusion amount. The regulations would apply to certain transfers that are includible, or treated as includible, in a decedent's gross estate under Sec. 2001(b).
 
Taxpayers Fall Far Short of Qualifying as Real Estate Professionals by Ed Zollars, CPA, Current Federal Tax Developments
Rental activities are generally treated as passive activities under IRC §469, limiting the ability of taxpayers to offset losses from such activities against other income. However, a special rule applies to individuals who can meet the qualifications to be a real estate professional under IRC §469(c)(7). The taxpayers in the case of Sezonov v. Commissioner, TC Memo 2022-40, attempted unsuccessfully to argue they qualified for this status.
 
Lesson From The Tax Court: Distinguishing Employees From Independent Contractors by Bryan Camp, TaxProf Blog
Professor Camp of Texas Tech law school provides a brief, readable and insightful analysis of Pediatric Impressions Home Health, Inc. v. Commissioner, T.C. Memo. 2022-35 (Apr. 12, 2022) (Judge Greaves), which he says teaches us how Tax Court distinguishes employees from independent contracts, and shows us a potential safe harbor that employers can use to escape the unpaid obligations if it turns out they erroneously classified employees as independent contractors. 
 
Lesson From The Tax Court: The Unforeseen Circumstances Rule For §121 Home Sale Exclusions by Bryan Camp, TaxProf Blog
Here’s another blog entry by Professor Camp on a Tax Court case on the unforeseen circumstances rule under §121 – involving a Mercer Island taxpayer, no less. It’s a 2022 case but the transaction occurred in 2009, at the bottom of the market. The defendant states, “The financial and housing markets crashed in 2008 and hit the Seattle area particularly hard, so the house in Mercer Island would not sell....” so he rented it out and moved to his more affordable Sammamish house. My, how times have changed….
 
Frequently Asked Questions Regarding Online Accounts and Estate Planning by Susan Friedman, JD Supra
There are many factors to consider when planning your estate in the event of your incapacitation or death. While discussions regarding traditional assets are crucial in the planning process, other factors should also be taken into consideration, such as plans for digital assets and online accounts. Here are some common questions and key takeaways regarding online accounts and estate planning.
 
Five Things to Know about the Employer Identification Number by The Internal Revenue Service, YouTube
This YouTube video shows a few tips for small businesses, trusts, estates, charities and others about the Employer Identification Number. Did you know that an EIN is never discontinued? If you close your business, you should write to the IRS to close your tax account to prevent identify theft.
 
More Schedule K-2 and K-3 FAQs posted by Paul Bonner, The Tax Advisor
The IRS has added eight new questions and answers to its website's frequently asked questions (FAQs) on Schedules K-2 and K-3, clarifying that affected partnerships and S corporations need complete only the forms' relevant portions and addressing an array of special circumstances.
 
Treasury Greenbook Select Highlights by Alexa Woods, Anthony Tufo, Ben Midas, Daniel Hauffe, Lindsay Bartholomew, Kelsey Jonas, Reema Patel, Shaun Terrill, Stephanie Fiumara-Hudson, Steven Grodnitzky, & Tammara Madison, Bloomberg Tax
On March 28, 2022, the Treasury Department issued “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals” – providing the details of President Biden’s tax policy proposals for FY2023. This complimentary OnPoint explains the key proposals and what you need to know. I download the slides so you don’t have to.

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