LAP Financial Services

The IRS has cleared away uncertainty for wealthy taxpayers and their financial advisors when it comes to estate and gift taxes.  For example, if a decedent had made cumulative post-1976 taxable gifts of $9 million, all of which were sheltered from gift tax by a BEA of $10 million applicable on the dates of the gifts, and if the decedent died after 2025 when the BEA was $5 million, the credit to be applied in computing the estate tax is that based upon the $9 million of BEA that was used to compute gift tax payable. In computing the amount of Federal gift tax or the amount of Federal estate tax, the gift and estate tax provisions of the Internal Revenue Code (“Code”)1 apply a unified rate schedule to the taxpayer’s-cumulative taxable gifts and taxable estate on death to arrive at a net tentative tax. The net tentative tax then is reduced by a credit based on the applicable exclusion amount (AEA)  which is the sum of the BEA within the meaning of section 2010(c)(3) and,...

On December 22, 2017, President Trump signed into law the bill formerly known as the Tax Cuts and Jobs Act (the “Act”). The Act includes substantial changes to the taxation of domestic and multinational businesses. Most significant for the leveraged finance markets is a broad limitation on the deductibility of business interest expense under newly amended Section 163(j) of the Internal Revenue Code of 1986, as amended (the “Code”). This new rule will limit the ability of many businesses to deduct interest expense paid or accrued to the extent net interest expense exceeds an adjusted earnings-based threshold. In addition, changes to tax rates, including a new deduction for noncorporate owners of pass-through entities (resulting in a lower effective tax rate), will be relevant for purposes of tax distribution provisions in credit agreements and the operating agreements of pass-through entities.  New Limitation on Deductibility of Interest General Rules Under pre-Act law, bus...

The tax law generally allows you to deduct travel expenses incurred while you are away from home on legitimate business matters. In a new case,  Maki, TC Summary Opinion 2019-34, 11/4/19 , the Tax Court approved deductions for long-distance travel by the taxpayer to tend to his timberland, despite the loss of some records. Here are the key facts of the case: The taxpayer, a resident of Washington, had inherited more than 100 acres of land. The land was located in two counties and the taxpayer traveled every week to take care of and monitor timber on the land. Each round-trip was about 300 miles, a considerable distance. The inherited land was valuable because of the timber situated on it. The taxpayer has continuously experienced physical problems and needs to walk and stay active. One way he has accomplished this, as well as providing for his future, was to plant trees and care for them so that they could be harvested in the future. The taxpayer began this process during the ...

Assume you and your spouse purchased a house in 2014 for $400,000, with $100,000 of the price allocated to the purchase of the land, and $300,000 to the home. You use the house as your principal residence for all of 2014, 2015 and 2016, before moving out at the beginning of 2017. Starting in 2017 you rent the house to tenants, before a fire decimates the house in 2018. At the time of the fire, your basis in the home – after being reduced for depreciation deductions while the home was rented – was $280,000. Because the value of the home had increased markedly, you received $650,000 of insurance proceeds to compensate you for the fire. Rather than use the proceeds to rebuild the home, you pocket the cash.  In 2019, you exchange the underlying land for other land that you intend to hold for investment that is valued at $300,000.   Questions:  How do you treat:  1)    The disposition of the house in 2018? 2)    The dispo...

Loss Disallowance Rules A taxpayer may not deduct a loss realized on a sale of property to or an exchange of property with a Related Person. Although the seller in a Related Person transaction may not deduct a loss, in some cases, the purchaser may offset subsequent gain realized on a subsequent the sale of that property. The offset is allowed: 1) if the sale is to a non-Related Person and 2) if the Related Person purchaser resells the property at a gain. To demonstrate the operation of the offset rule, please consider the following example. Suppose Mr. A sells property in which he has an adjusted basis of $1,000 to his sister, Ms. B, for its fair market value of $750. Mr. A's realized loss of $250 is not allowed under the loss disallowance rules. If Ms. B is able to sell the property later to a non-Related Person for $1,100, her gain of $350 (determined by subtracting from the $1,100 amount realized on the sale her adjusted basis of $750) is offset by Mr. A's disallo...

Denial of deduction for certain related   party  payments. No deduction is allowed for  losses  from sales or exchanges of property (except in corporate liquidations), directly or indirectly, between certain related  persons. Under pre-Act law, there was no explicit disallowance of a deduction for any disqualified related   party  amount paid or accrued under a hybrid transaction or by, or to, a hybrid entity. New law.  For tax years that begin after Dec. 31, 2017, the Act denies a deduction for any disqualified  related party  amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. A disqualified related   party  amount is any interest or royalty paid or accrued to a  related   party  to the extent that: (1) there is no corresponding inclusion to the  related   party under the tax law of the country of which such  related party  is a resident for tax purpos...

Do you know what June 29, 2019 is? Of course you do. It’s a Saturday. It’s also the 180 th  day of the period that began on January 1, 2019. Need another hint? It is the final day by which a taxpayer who was an owner in a calendar-year pass-through entity – a partnership or S corporation –may elect to defer their share of any capital gain recognized by the pass-through entity during 2018 by contributing an amount equal to the amount of such gain to a qualified opportunity fund in exchange for an equity interest in the fund. What’s more, it is the 74 th  day of the period that began on April 17, 2019 – the day on which the IRS issued its eagerly-awaited second set of proposed regulations related to the qualified opportunity zone (“QOZ”) rules. Among the issues that were addressed in this second installment of guidance under Sec. 1400Z-2 of the Code was the ability of a taxpayer who already owns real property located in a QOZ to lease such property to a related person – s...