Source: https://floridatax.com/legal-updates/
Timestamp: 2019-04-25 20:47:29+00:00

Document:
While it seems easy enough to execute a will, this case reminds us that a client’s attempt to do so at home without the guidance of a lawyer may have serious unintended consequences if the will is not executed in strict compliance with the signature requirements of F.S. 732.502.
We all know that come 2025 the aggregate transfers covered by the unified credit for estate and gift taxes will revert to pre-Trump levels (subject to adjustments for inflation), thus ensnaring more taxpayers in the estate and gift tax web. Of course, should a Democrat be re-elected in 2020, changes in taxes to the higher side may occur even sooner than 2025.
A recent tax bill filed by Senator Bernie Sanders, a candidate for President, gives some insight about what tax legislation might look like if a Democrat is elected – more so if he is elected, but perhaps also as to other Democratic candidates.
a. Increases in estate, gift and GST rates, to a maximum of 77% for members of the billionaire’s club. . .
a. Transferee liability is not limited to those who receive a gift or bequest pursuant to a last will or disposition of property being administered under a revocable trust. Instead, it extends to recipients of all property. . .
If the asset at issue is an IRA or qualified plan interest, the owning spouse may have similar concerns. However, income tax issues complicate the planning. For income tax planning purposes, it is usually desirable. . .
Click here for rate charts.
Fla.Stats. §69.031(1) authorizes a probate court to direct the financial assets of a probate estate be deposited into a restricted depository account held by a financial institution. This is a protective mechanism, since assets may be disbursed from that account only upon court order, instead of mere direction by the personal representative. Thus, it acts a mechanism to reduce the risk of improper use, dissipation, or disbursement of estate asset. . .
The 2017 Tax Act imposed a penalty on excess compensation paid to employees of an applicable exempt organizations (“ATEO”). Code §4960 imposes an excise tax of 21 percent on compensation paid to a covered employee in excess of $1 million and on any excess parachute payments paid to a covered employee. A “covered employee” is any employee (or former employee) who is one of the five highest – compensated employees of the organization for the taxable year or was a covered employee of the organization (or any predecessor) for any preceding taxable year.
The IRS has issued Notice 2019-9, which contains interim rules on how the excise tax will apply. Some interesting aspects of the new statute and rules are summarized below. . .
Problematic for taxpayers who claim a lack of knowledge of the FBAR filing requirement is the question on Schedule B of their federal income tax return that asks if they have an interest in or authority over an account. . .
First, the Court held that the definition of willfulness is not particular to FBAR violations but should involve the definition applied in other civil contexts. Particularly, the Court said . . .
No Withholding on Gross Proceeds. Under Code §§471(a) and 1472, withholdable payments made to certain FFIs and certain NFFEs are subject to withholding under chapter 4. Under Code §1473(1) the term “withholdable payment” means: (i) any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income. . .
Under current Florida law, the provisions of a decedent’s will that impact the former spouse of that person become void upon divorce. But what happens when the decedent’s will is prepared before the marriage (which ultimately ended in divorce)?
Ordinarily, a plaintiff may voluntarily dismiss his or her action pursuant to FRCP 1.420(a)(1) at any time before a hearing on motion for summary judgment. In this case, the Plaintiff tried to dismiss certain trust litigation subsequent to a settlement agreement, but the trial court refused to grant his dismissal and attempted to retain jurisdiction over the subject trust. Ultimately, the Court found that the trial court erred and had no basis for not accepting the Plaintiff’s voluntary dismissal.
Parties must file a declaration with CFIUS at least 45 days. . .
As a member of a law firm with a substantial practice in estate and trust litigation, I have the opportunity to see numerous cases of poor drafting that end up in dispute or litigation. In the best of circumstances, it can be difficult to draft a 20-30 page trust or other instrument 100% free of all drafting errors. But there are many circumstances that are more likely to create, or not catch, drafting errors.
a. Do your best to avoid the need to rush. Easier said. . .
Mr. Priever’s father, through his guardian, petitioned to have the will construed as if Ms. Gordon predeceased Mr. Priever pursuant to Fla.Stats. §732.507(2). This statute reads: . . .
In this decision, the Court considered, among other things, the applicability of the 2 year non-claim period to actions brought to determine the beneficial interest of heirs. Years after an order of summary administration was entered, purported heirs of the decedent petitioned to reopen the summary administration because they argued they should have received notice of the petition for summary administration since they were easily ascertainable known heirs of the decedent.
In this decision, the Court considered whether a beneficiary made sufficient allegations regarding the proceeds of a life insurance policy in order to survive a motion to dismiss. In reversing the trial court’s dismissal, it found that there was enough evidence to proceed on the beneficiary’s complaint.
This decision clarifies the statute of limitations for determining paternity for purposes of intestacy in a probate proceeding. Prior to 2009, there was a four year statute of limitations from a person’s 18th birthday to bring a proceeding to determine paternity.
In this typical fact pattern, a child from the decedent’s first marriage, following a failed attempt to have the decedent’s estate planning documents overturned, brought an action against the decedent’s second spouse for tortious interference. While she prevailed at trial, the Court overturned the judgment because there was no competent evidence to support a claim for tortious interference with an expectancy.
In a recent U.S. District Court decision, the taxpayers were audited, and ultimately received a letter from the auditing agent that “the penalties had been waived.” The taxpayers signed a Form 4549 document which did not assess penalties.
Subsequently, the IRS sent a Form 4549-A assessing a civil penalty under §6707A for failure to disclose a listed transaction. The taxpayers argued that the IRS had waived penalties and could not assess this new penalty, or alternatively the IRS was equitably estopped from asserting the penalty. The court ruled in favor of the IRS and allowed the penalty.
Code §7121(a) authorizes the IRS to enter into agreements. . .
GENERAL COMMERCE CLAUSE LIMITATIONS ON TAXATION OF INTERSTATE SALES. State regulations may not discriminate against interstate commerce, and may not impose undue burdens on interstate commerce. State laws that “regulat[e] even-handedly to effectuate a legitimate local public interest . . . will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefit”. In Complete Auto Transit, Inc. v. Brady, 430 U. S. 274 (1977), the Court held it would . . .
In this decision, the 3rd DCA adopts the requirement that an attorney’s services must benefit a ward or the ward’s estate in order to be entitled to fees. The Court focuses on the different standards under the statutes to determine entitlement to fees, versus the standard to determine amount and reasonableness of fees.
In this case, the Personal Representative sought fees for serving as both PR and attorney for the estate – while not totally clear from the opinion, it appears the PR sought those fees using the presumptively correct fee Florida statutory fee schedule schedule.
a. Work by the office of the outside attorney to determine addresses of 53 interested persons for purposes of receiving formal notice regarding a determination of beneficiaries and pertaining . . .
During happy days, one spouse (call him or her the “Donor Spouse”) sets up an irrevocable trust for the benefit of the other spouse (call him or her the “Donee Spouse”). Under Code §672(e)(1)(A), a grantor of a trust is treated as holding any power or interest in a trust that is held by an individual who was the spouse of the grantor at the time of the creation of such power or interest. This typically results in grantor trust status for the trust since the Donor Spouse is treated as having retained rights to income and principal in the trust – with the Donor Spouse being taxable on some or all of the trust income.
Fast forward, and the happy couple is not so happy. They divorce . . .
b. The new rules allow interest to be deducted to the extent of the taxpayer’s business interest income, plus 30% of adjusted. . .
The OVDP commenced in 2009, and provided a mechanism for U.S. taxpayers who had not complied with various non-U.S. information disclosure and tax payments to square up with the IRS without risk of criminal prosecution, but at the cost of fixed penalties, back taxes, and interest. Over 56,000 taxpayers have used one of its programs. . .
This decision rested on whether sufficient questions of fact were raised to preclude summary judgment regarding claims of breaches of fiduciary duty. The beneficiary of an irrevocable trust sued her sister, one of the successor trustees, for breach of fiduciary duty, alleging that she had failed to distribute funds as provided for by the trust documents, failed to seek the return of $10,000 of trust assets wrongly retained by another of the successor trustees, and failed to return monies that she had purportedly misappropriated from the trust account prior to the settlor’s death.
Alternative Minimum Tax Exemption for Individuals: $109,400 for married individuals filing joint returns and surviving spouses – $70,300 for other unmarried individuals – $24,600 for estates and trusts.
Standard Deduction: $24,000 for married individuals filing joint returns and surviving spouses – $12,000 for unmarried individuals . . .
Writs of certiori are rarely available in discovery disputes, because in most cases, the harm caused by an improper ruling on discovery can be corrected on appeal. Here, however, the trial court denied the plaintiff the ability to conduct discovery about a decedent’s prior estate planning documents.
Article X, section 4 of the Florida Constitution, which provides protection against forced sale for homestead property, reads in relevant part . . .
The club operated at a loss, reporting losses in 2012-14 of $39,285, $74,120, and $96,893. Joy used the losses to offset other income she had. The club’s recordkeeping was atrocious. . .
I wrote back in 2015 here about new legislation that gave power to the Secretary of State to deny, revoke or limit the passport of persons with delinquent taxes. Code §7345 provides that the Commissioner of the IRS will provide notice to the Secretary of the Treasury, who will then transmit that notice to the Secretary of State, in regard to a taxpayer’s delinquent tax debt. Generally, it applies to delinquent tax debt over $50,000 (adjusted for inflation), for which a notice of lien has been filed or a levy has been made. Upon receipt of a Code §7345 certification, §32101(e) of the 2015 FAST Act . . .
In Florida, a “surviving spouse” receives certain benefits- they can take an intestate share of the deceased spouse’s estate and they may also be entitled to an elective share, family allowance, homestead and so on. Under principles of comity, Florida courts will recognize the marriage of citizens of a foreign country if that marriage was valid under foreign law.
Normally, an injunction is considered to be a serious form of relief, and courts typically will not grant them unless a high burden is met. Here, however, the Court upheld an injunction freezing trust assets, based on the probate court’s “inherent jurisdiction” to protect the assets under its supervision.
If the pending tax bills are reconciled by Congress and enacted into law, there is likely to be a substantial reduction in the number of individuals that will itemize their deductions. For many taxpayers, this may mean they will no longer be deducting charitable contributions after 2017. Taxpayers may want to consider making. . .
The Court here considered when a party must bring an action to challenge the validity of a trust purportedly procured by undue influence. While the Florida Trust Code prescribes when a challenge to the validity of a trust may be started (when it becomes irrevocable or upon the settlor’s death), the Trust Code does not specify a limitations period for challenging the Trust. As a result, we must look to the general rules for limitations contained in Chapter 95.
The IRS released its 2018 tax adjustments – the following table summarizes the transfer tax adjustments. Note that some of these adjustments will become moot if the changes in the House and Senate versions of the pending tax act become. . .
Fla.Stats. §196.161 allows a property assessor to go back 10 years and assess taxes, a penalty of 50% of taxes, and 15% interest . .
Most practitioners are familiar with the Form 2848, Power of Attorney and Declaration of Representative. This form is signed by a taxpayer and designates an eligible person to represent the taxpayer before the IRS. IRS personnel will typically not provide information or otherwise discuss a taxpayer’s circumstances with a representative until they are provided with a Form 2848.
The Form requires a description of the matters for which the representation is authorized, including, where relevant, the type of tax involved, the federal tax form number, the specific year(s) or period(s) involved, and, in estate matters, the decedent’s date of death. The portion of the form where this is done looks like this. . .
As part of President Trump’s mandated review of federal regulations, the Secretary of Treasury has issued a report specifically recommending the elimination of the Code §2704 Proposed Regulations. While these regulations may reappear in revised form someday, it is highly unlikely that the current version will ever be finalized.
Of less general import, the Secretary also recommended the withdrawal of proposed regulations under Section 103 defining a political subdivision.
Other regulations were not targeted. . .
a. He has continued his call for a 15% business tax rate. . .
For tables and diagrams, click here.
On review, the Tax Court held a taxpayer can raise substantial compliance. . .
Raelinn Spiekhout was the personal representative of the estate of Deborah Scott. The estate was subject to claims of over $1.8 million dollars, including IRS claims for $591,406.05. The principal asset of the estate was real estate worth $282,000. After litigation involving the priority of payment of creditors, the issue came down to whether the personal representative was entitled to be paid compensation and expenses out of the proceeds of sale of the real estate, or whether the IRS, by reason of tax liens filed during the decedent’s lifetime, was entitled to all the net proceeds. . .
I first wrote a simplified guide to U.S. taxation of nonresident aliens before the Internet and emails. The first few editions were printed and mailed out to persons on our firm’s mailing list. Eventually, I circulated it by email, and then put it on our firm’s website. It now resides on this blog, in the publication list to the right. It has been a few years. . .
Because of numerous requests for extensions of the timing period, and the administrative burden placed on the IRS, the IRS has issued a Revenue Procedure to allow for the filing of a late portability election. The key provisions of this extension are: . .
The OVDP program allows taxpayers to remedy deficient disclosure filings relating to offshore accounts for a fixed penalty amount. As part of the program, taxpayers must file either original or amended tax returns which include the income earned by their foreign accounts for the most recent eight tax years for which the due date has passed. In addition to other applicable penalties, an offshore penalty is imposed in lieu of other penalties relating to failure to properly disclose foreign accounts.
In preparing or amending returns. . .
Tables can be viewed here.
A large issue in the case, and one that is relevant to other celebrities, is the value at death of Jackson’s name and likeness. The estate reported the value at $2,105.00, claiming his reputation was tainted by child-abuse allegations and strange behavior. The IRS pegs that value at. . .
The items with the green arrows are new – previously, the IRS did not obtain this information from the mortgage lender. . .
The Eighth Amendment to the United States Constitution provides “excessive bail shall not be required, nor excessive fines imposed. . .
A recent private letter ruling determined that a large grant . . .
The floor beneath the itemized deduction for medical expenses of taxpayers who are age 65 or older increases from 7.5% of AGI to 10% of AGI. Thus, fewer medical expense deductions for older taxpayers. Code §213. . .
A husband and wife had an accounting in Switzerland at UBS AG, into which they deposited commissions from camera sales and also directed some of their international customers to make deposits. In 2007, the tax year at issue, the taxpayers did not file the required Form TD F 90-22.1 (FBAR) form with the Department of Treasury which they should have filed to disclose their interest in the UBS account (such FBAR reporting now occurs on FinCen Form 114). They also did not file FBARs, nor U.S. income tax returns, for other tax years. In 2010, the taxpayers applied to participate in the Offshore Voluntary Disclosure Program (OVDP), and filed delinquent income tax returns and FBARs. The FBARs failed to report other non-U.S. accounts of the taxpayers, and the income tax returns failed to report certain commission income. The taxpayers were ultimately rejected from the OVDP program. . .
In bankruptcy proceedings, if the bankruptcy trustee seeks to gain access to assets that the debtor transferred prior to bankruptcy under fraudulent conveyance law, the trustee must act within the applicable state fraudulent conveyance law statute of limitations. For example, in Florida, this would mean transfers occurring more than 4 years prior to the bankruptcy could not be challenged by the trustee.
A recent Bankruptcy Court case demonstrates a large loophole in this limitation, In that case. . .
An additional $1 million was paid in estate taxes. Eventually, the closely-held stock was distributed to the beneficiaries due to issues with state law restrictions on a gaming license being owned by a trust – at that time . .
A rebuttable presumption of correctness cloaks an IRS notice of deficiency. Thus, the taxpayer typically bears the burden of proving by a preponderance of the evidence that the Commissioner’s assessment is erroneous. However, there are some circumstances where the burden of proof shifts to the IRS. . .
The IRS only has three years after a Form 709 is filed to assess gift taxes on a gift, so long as the gift is adequately disclosed on the return. If a gift is not disclosed, the statute of limitations does not begin to run on that gift. . .
Click the Read More link below to go to the tables.
The U.S. has now issued new and revised regulations . . .
What Kind of Tax Changes Can We Expect From Trump’s Presidency?
The tears have not yet dried for some, and the celebrating is not yet over for others, but let’s turn our attention to taxes. With a Republican Congress and a Republican president, some measure of tax relief is a given. What can we expect?
1. Cut in half the number of individual income tax brackets and bring rates down to 12%, 25% and 33%.
2. Elimination of the 3.8% Obamacare tax.
3. Lower the business tax rate for corporations and small businesses alike to 15%, but with elimination of many deductions. . .
Taxpayers who fail to file Reports of Foreign Bank and Financial Accounts (FBARs) disclosing their non-U.S. accounts can suffer a 50% penalty on the balance of the unreported accounts. In one of the largest penalties I have seen, a New York professor of business administration has been subjected to a $100 million civil FBAR penalty for failing to report a $200 million account.
Clients often enquire . . .
The IRS has issued final and temporary regulations under Code Section 385. These provisions, intended to limit earnings stripping, will enhance the IRS’ ability to characterize related party ownership arrangements, purportedly established as debt, as equity instead.
During the course of the lien period, the value of the liened property fell below the amounts still due to the IRS . . .
Many businesses rely on third parties to handle their payroll, including making withholding deposits with the IRS on behalf of the business. Way too often, the payroll provider will embezzle the funds and not pay them over to the IRS.
In this circumstance, the business is still on the hook for the unpaid employment taxes. To add insult to injury, if the IRS takes a hard line it will usually be successful in obtaining interest and penalties from the business. This is based on the view of the courts that a taxpayer’s duty to file returns and pay taxes is nondelegable. For a recent example where the employer was held responsible for interest and penalties, see Kimdun, Inc. v. U.S., 118 AFTR 2d 2016-5508 (DC CA 2016).
So what can employers do to protect themselves? . . .
I have updated this table (last updated in 2013) – you can download it from . . .
An estate sought relief for $1.189 million in penalties for the late filing of a Form 706 and the late payment of estate taxes when the filing and payment were over a year late. The U.S. District Court granted the government’s motion for summary judgment upholding the penalties, and the 6th Circuit Court of Appeals affirmed the lower court. The late filing and payment were principally attributable to the estate attorney who was responsible for the filings. The courts ruled for the government notwithstanding the following favorable facts supporting reasonable cause: (1) the executor was elderly, (2) he only had a high school diploma, (3) he had never interacted with attorneys before serving as executor, (4) he had never served as an executor, (5) the attorney was suffering from brain cancer and her competency was deteriorating during the applicable period, (6) the attorney told the executor that extensions had been obtained whenever questioned about the filing status, but this was a lie, (7) the State of Ohio refunded the penalties as to state estate taxes for reasonable cause, and (8) the government conceded . .
A partnership was a partner in a Cayman Islands partnership – that investment made up most of its assets. The Cayman Islands partnership did not file a Form 1065 income tax return and did not give a Form K-1 to the taxpayer partnership, because it was determined that the partnership accounting records were such a mess that it would cost several million dollars to put them in good shape and meanwhile the Cayman Islands partnership was liquidating.
Thus, the taxpayer partnership did not have the information it needed to file its own Form 1065, and did not file one. The IRS sought to impose a failure to file penalty under Section 6698. This penalty is only $195 multiplied by the number of partners – but this partnership had about 1600 partners. That would put the penalty at $312,000! And this went on for 3 years.
A decedent died while owing over $340,000 in unpaid federal income tax liabilities. His estate was insolvent. The assets of his estate consisted almost entirely of a 100% interest in one corporation and 50% of another corporation. Each corporation owned a fishing vessel as its sole asset. Shortly after the decedent died, the decedent’s surviving spouse transferred the shares of the 100% owned company to herself. About six months later, she was appointed executrix of the decedent’s estate, and later transferred the shares of the second corporation to herself. At the time of these transfers, she knew of the unpaid tax liabilities.
The IRS sought to impose liability on the wife for the unpaid tax liabilities per the application of the federal claims statute for the value of the stock she distributed (31 U.S.C. Section 3713). The trial court concurred and entered a judgment against the wife, and the appellate court affirmed the judgment, even though some of the shares were distributed prior to the wife being appointed executrix.
A decedent had 2 IRAs. The death beneficiaries of the IRAs were trusts that qualified as “look through” trusts, such that the payout period for the IRAs after the decedent died could be computed using the life expectancy of the trust beneficiaries.
In April, I wrote how a U.S. District Court held that a beneficiary’s discretionary interest could be liened by the IRS for tax liabilities of the beneficiary. The interest was “halfway” between a purely discretionary interest and a mandatory HEMS ascertainable standard interest (health, education, maintenance, support) clause – it provided for HEMS-like distributions, but only in the “sole discretion” of the trustee. You can read my post here.
Leonard and Joyce owned 50% of a commercial property. Their son, Derek, owned the other 50%. The IRS liened the property due to amounts owed by Leonard and Joyce to the IRS for unpaid taxes. The IRS sought to foreclose its tax liens and force a sale of the property. 50% of the proceeds would go to the IRS, and 50% would go to Derek.
The taxpayers argued that the district court should not order the sale.
Code Section 7403 provides authority to the government to file suit to enforce its lien and force a sale of the liened property. There is no exception in Section 7403 that prevents its operation even though there are “innocent third-party” interest holders in the subject property that do not owe taxes to the IRS. The U.S. Supreme Court, in US v. Rodgers, 461 US 677 (1983), confirmed that the Code Section authorizes the sale of the whole property in these circumstances, and that the Supremacy Clause of the U.S. Constitution overrides any state law to the contrary that seeks to protect innocent third-party interest holders.
This appeal deals with a claimant’s attempt to collect interest due the claimant on a promissory note. The claimant filed a timely statement of claim in the estate, seeking payment due on a note plus interest.
Florida exempts a portion of a Florida homestead from ad valorem tax. This could save a taxpayer a few hundred dollars a year. The real economic value to such an exemption is that under Florida’s Save our Homes provision, ad valorem tax value increases are limited to 3% per year even though the value of the residence increases more.
This decision deals with the question of whether a ward’s right to marry is subject to court approval during a guardianship proceeding.
If you suffer a loss on the disposition of real property, you want to be treated as a developer for income tax purposes – that is, to be treated as engaged in a trade or business. That way, you can get ordinary loss treatment and not a long termor short term capital – the ordinary loss will typically be available to offset more types of income than a capital loss.
This appeal centers around two distinct issues with regard to a surviving spouse’s elective share: (1) first, whether a court can direct the payment of interest on a portion of the elective share amount, and (2) whether attorney’s fees can be charged against the elective share.
Did You Get An Erroneous IP-PIN Number from the IRS?
In this decision on the equitable doctrine of “renunciation,” the Court held that a trust beneficiary who challenged a trust document did not have to repay distributions made to him from the trust in order to challenge the trust document.
I’ve always thought so, but apparently at least one estate thought not, and took the issue to the Tax Court.
Rocke v. American Research Bureau et al.
For anyone looking for a refresher on the doctrine of dependent relative revocation, this decision is a good read. In this case, after 9 years of litigation, the Court ultimately determined that the probate court’s failure to apply the doctrine of dependent relative revocation incorrectly resulted in the distribution of an estate worth $12 million to the decedent’s intestate heirs rather than to the beneficiary of one of her prior wills.
This case involves a dispute under Florida’s Public Guardianship law following a trial court’s order allowing one guardian to withdraw and appointing Legal Aid Society of Palm Beach County, Inc. (“Legal Aid”) in its place.
A new newsletter has been published – read it here!
This decision centered around when the knowledge of a guardian is imputed to the ward for purposes of bringing a medical malpractice suit.
A cheat sheet summary of the new filing dates enacted in the recently enacted Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. Note that most of these will start applying only to filings for the 2016 tax year.
The focus of this case was the applicability of F.S. 732.507(2), dealing with the effect of divorce on a decedent’s will which included a devise to his former spouse and a trust for her family….
This case highlights the lack of understanding many trust and estate practitioners have about what “decanting” actually means. Despite the clear language of F.S. 736.04117, it seems many are still confused about when decanting is appropriate, and about how to follow the simple rules provided in the statute….
Richard (Rick) Josepher has prepared an excellent and detailed review that analyzes and critiques the current state of affairs in regard to the various offshore enforcement environment. It provides a unique in-depth review of the failings and problems of the current system, suggestions to the government to address these issues, and specific strategic analysis for tax practitioners operating in this area.

References: §69
 §4960
 §1473
 §732
 §6707
 §7121
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 §672
 §7345
 §7345
 §32101
 §196
 §2704
 §213
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